Adjustable derivative securities and method for adjusting the value of same due to a corporate event

ABSTRACT

The claimed invention relates to an adjustable derivative contract. Particularly a method and system for adjusting the derivative contract to account for time value of money due to an occurrence of a corporate event that affects the value of the derivative contract. The claimed method and system allocates distributions amongst different derivative contracts, each derivative contract representing a different economic interest of at least two shares of an underlying security. The claimed invention uses the concepts of present and future values to value derivative contracts in order to more fairly and accurately represent the interests of the various holders of such derivative contracts upon the occurrence of a corporate event affecting the value of these derivative contracts.

RELATED APPLICATION

The present application is a continuation-in-part application of U.S.application Ser. No. 12/972,383 filed Dec. 17, 2010, which is acontinuation-in-part application of U.S. application Ser. No. 12/475,977filed Jun. 1, 2009, which is a continuation-in-part application of U.S.application Ser. No. 10/154,742 filed May 24, 2002, each of which isincorporated herein by reference in its entirety. U.S. application Ser.No. 12/972,383 is a continuation-in-part application of U.S. applicationSer. No. 11/588,807 filed Oct. 27, 2006, which is a continuation-in-partapplication of U.S. application Ser. No. 10/154,742 filed May 24, 2002,each of which is incorporated herein by reference in its entirety.

BACKGROUND OF THE INVENTION

The financial industry created derivative securities (or derivatives) asa way to reallocate risk, create leverage, and provide a wider range ofinvestment opportunities for its clients. These are securities whoseprices are determined by, or “derive from,” the prices of othersecurities. Popular examples of derivative securities include optionsand futures contracts. Standardized forms of these derivatives nowregularly trade on various national and international exchanges. Becausethe value of derivatives depends on the value of the underlyingsecurities, these can be powerful tools for hedging and speculation.

Option contracts, for example, are written on a variety of securities,such as common stock, stock indexes, foreign currency, agriculturalcommodities, precious metals, and interest rate futures. An investor maywish to purchase a call option, which allows the investor (optionholder) to purchase the underlying security at a specified price (knownas the exercise or strike price) during a fixed time period, if theinvestor believes the value of the underlying security will rise duringthat time period. For an American style option contract, if the price ofthe underlying stock rises above the strike price at any time during thefixed time period, the option holder may exercise his option to purchasethe underlying common stock at the strike price and then immediatelysell it at the market price. The option holder will only realize aprofit if the difference between the market price and the strike priceis greater than the original investment (premium) paid for the optioncontract. If the price of the underlying security does not rise abovethe strike price during the fixed time period, the option holder simplyallows the option contract to expire, and his losses consist only of thepremium paid for the option contract. A European option, in contrast,can only be exercised on the expiration date and would only be exercisedif the stock is trading above the strike price on the expiration date.

An investor may also purchase a put option, which allows the optionholder to sell the underlying security at a specified strike priceduring a fixed time period, if he believes that the value of theunderlying security will drop during the fixed time period. For anAmerican style option contract, if the price of the underlying securitydrops below the strike price at any time during the fixed time period,the option holder may exercise his option to sell the underlyingsecurity at the strike price. In order to exercise a put option, theoption holder does not have to own the underlying security. Uponexercise, the investor's broker purchases the necessary shares/units ofthe underlying security at the market price and immediately delivers (or“puts” them) to an option writer for the strike price. The option holderwill only realize a profit if the difference between the strike priceand the market price of the underlying securities upon exercise isgreater than the premium paid for the option. Again, if the price of theunderlying security does not drop below the strike price during thefixed time period, the option holder can just allow the option contractto expire and lose no more than the premium paid for that option.

Conversely, the writers of call and put options generally sell theseoption contracts for a premium. They write options on the underlyingsecurities for a variety of reasons. Security owners who feel bullishabout their security may write a put option feeling that they can gain apremium of the option contract without risking much in return. Securityowners may write a call option as a way of enforcing their selldisciplines. If an investor would sell their security if it reached acertain price in accordance with a disciplined investing strategyregardless of the surrounding circumstances, then such investors canwrite a call option to enforce that strategy and gain a premium inaddition. Traditionally, equity options are created as contracts on 100shares of the underlying stock. They are always created by purchasing anoption, resulting in a long position, or writing an option, resulting ina short position. These are referred to as opening transactions. Theoption contracts are terminated by one of (a) letting the option expire,(b) exercising the contract, or (c) reversing the opening transaction inthe market place. These are referred to as closing transactions.

The benefits associated with option contracts, which are only one formof derivative securities, are numerous. Investors can use them ashedging devices for minimizing risk. For example, an owner of a securitymay buy a put option on that security at a price that provides theinvestor with the comfort of knowing that he cannot lose more than a setamount of money for a specified time period. Investors can also enforcecertain sell disciplines by writing call options as described above.Additionally, investors can speculate and leverage their stake in anunderlying security through the purchase of call options in thatunderlying security as opposed to the purchase of the actual security.Combinations of the buying and selling of these simple option contractsprovides a variety of products for the financial industry to offer itscustomers, appealing to the various investing strategies belonging to awide range of customers.

The problem with the current treatment of option contracts is that uponthe occurrence of a corporate event, such as a liquidating distribution,the holder of the derivative security must exercise any rights at thattime or allow the security to expire. For example, assume that acorporate event has triggered liquidation of the common stock of aCompany XYZ, with full distribution rights upon liquidation. Regardlessof the price of the stock upon liquidation, the holder of a call option(the “holder”) must now decide whether to exercise his option topurchase the common stock at the strike price and sell at theliquidating price. Even if the holder makes a profit upon such anoccurrence, the holder does not gain the true benefit of the bargaincontemplated when he entered into the option contract. He loses theremaining time period in which the underlying common stock could haveappreciated even further. The holder paid a premium to speculate on theunderlying stock for a specified time period, and now that period isgetting shortened without an adjustment for the loss of time, for whichthe holder has already paid. There is a need for a process that accountsfor the value of time when the holder is forced to exercise his optioncontract before the specified time period has expired, or when anyinvestor is forced to exercise a derivative security before thebargained for time period has come to an end.

OBJECTS AND SUMMARY OF THE INVENTION

It is an object of the claimed invention to properly allocate gains andlosses on investments in the derivative contracts upon the occurrence ofcorporate events related to the underlying securities, which cause theallotted time period for such derivatives to prematurely expire.

It is also an object of the claimed invention to adjust the value of thederivative contract representing an economic interest of a security upontheir premature expiration to reflect the value of the time lost.

It is another object of the claimed invention to utilize the concept ofpresent value to properly discount the value of the derivative contractupon their premature expiration to reflect the value of the time lost.

It is a further object of the claimed invention to properly adjust thevalue of and number of shares/units of a security underlying thederivative contract upon a corporate event related to the underlyingsecurities to properly reflect such event.

It is still a further object of the claimed invention to utilize theconcept of present value in properly adjusting the number ofshares/units of a security underlying the derivative contract upon acorporate event relating to the underlying security to properly reflectsuch event.

It is yet another object of the claimed invention that the allocation ofthe results of a corporate event among the derivative contracts be asfair as possible to the various holders of the derivative contracts.

It is still yet another object of the claimed invention that theoriginator or creator of the derivative contracts related to a securityor stock experiencing a corporate event is never liable for more thanthe value of the security or stock underlying the derivative contracts,thus allowing the originator of the derivative contracts from a coveredposition to be fully hedged over the life of the derivative contracts.

The claimed invention relates to adjustable derivative contracts and amethod for providing investors in the adjustable derivative contractsthe fair value of their investment upon the occurrence of an eventrelated to the underlying security that forces such investors toexercise their adjustable derivative contracts before the time periodallotted to the derivative contracts has expired. In accordance with anexemplary embodiment of the claimed invention, the time value of moneyis used to readjust the value of the derivative contracts for the holderof the derivative contract as well as the investor who has written thederivative contract. The claimed invention further relates to adjustablederivative contracts and a method for generating and adjustingderivative or option contracts that trade based on two or moreshares/units of the underlying security.

In accordance with an exemplary embodiment of the claimed invention,upon the occurrence of a corporate event related to the underlyingsecurity, for which the derivative contract's allotted time periodprematurely expires, the exercise price or the termination claim of thederivative contract is readjusted to reflect the value of the time lostupon such premature expiration. The adjustment of the exercise price ortermination claim is based on a discount rate “r” selected toapproximate the true time value of money. This can be the interest rateon a designated Treasury security maturing soon after the terminationdate of the derivative contract. The discount or adjustment of theexercise price or termination claim may equate to a raising or loweringof the price according to the nature of the derivative contract. Anypredetermined formula may be used to approximate the time value of moneyand discount the exercise price or termination claim. A discountingformula, which is utilized in illustrative examples infra, is used tolower the exercise price or termination claim according to its presentvalue as follows:

PV=E/(1+r)^(y)

PV is the new exercise price or new termination claim adjusted toreflect its present value; E is the old exercise price or oldtermination claim; r is the discount rate, which may be chosen to mostaccurately reflect the time value of money; and y is the time thatremains after a premature expiration of the allotted time period for aderivative contract, expressed in the same units as the discount rate. Arelated formula with the same variables, also utilized in illustrativeexamples herein, is used to raise the exercise price or terminationclaim to its future value as follows:

FV=E*(1+r)^(y)

In accordance with an exemplary embodiment of the claimed invention,factors other than the exercise price or termination claim of thederivative contract may be adjusted, upon an event that causes prematureexpiration, to provide the holder and writer of such derivative contractwith a fairer distribution of the underlying asset. One such factor isthe income or dividend stream of the security, which may be adjusted bytaking the present value of the remaining nominal dividends at thediscount rate as follows:

${P\; V} = {\sum\limits_{i = 1}^{N}{D_{i}/\left( {1 + r} \right)^{y_{i}}}}$

This time PV would be the present value of the stream of income; N isthe number of remaining payments; the D_(i) are the stream of income ordividend payments; again r is the discount rate; and the y_(i) are thetimes to each of the D_(i) dividend payments in the future.

In accordance with an exemplary embodiment of the claimed invention, themethod adjusts a derivative contract to account for time value of moneydue to an occurrence of a corporate event that affects the value of thederivative contract. The claimed method adjusts the termination claim ofthe derivative contract to account for time value of money bycalculating a present value of the termination claim based on time totermination of the derivative contract discounted at the predeterminedrate by a processor, thereby affecting the value of the derivativecontract. The derivative contract is based on one of the economicinterests of at least two shares/units of an underlying security. Theclaimed method further adjusts one or more provisions of the derivativecontract based on the type of distribution to the underlying security asa result of the corporate event by the processor, and stores theadjusted termination claim and the adjusted derivative contract in adatabase.

In accordance with an exemplary embodiment of the claimed invention, theaforesaid claimed method further allocates the value of at least twoshares/units of underlying security to a plurality of derivativecontracts. Each derivative contract represents one of the economicinterests of at least two shares/units of the underlying security.

In accordance with an exemplary embodiment of the claimed invention, theplurality of derivative contacts comprises a dividend value of stock(DIVS) derivative contract representing a stream of dividendsdistributed to a holder of at least two shares of the underlyingsecurity, an option with limited stock (OWLS) derivative contractrepresenting a nucleus of at least two shares of the underlyingsecurity, and a residual interest in stock (RISKS) derivative contractrepresenting a speculation on future gains on the value of at least twoshares of the underlying security. The aforesaid method allocates thevalue of at least two shares of the underlying security into the DIVS,OWLS and RISKS derivative contracts.

In accordance with an exemplary embodiment of the claimed invention, thetype of the distribution is a cash distribution and the derivativecontracts comprise OWLS and RISKS derivative contracts. If the cashdistribution is less than the present value of the termination claim,the aforesaid method allocates the entire cash distribution to the OWLSderivative contract to account for decrease in the termination claim;determines the future value of the cash distribution discounted at thepredetermined rate to account for the time value of money; andcalculates the adjusted termination claim by reducing the terminationclaim by the future value of the cash distribution. However, if the cashdistribution is greater than or equal to the present value of thetermination claim, the aforesaid method allocates a portion of the cashdistribution up to the present value of the termination claim to theOWLS derivative contract; allocates the remaining portion of the cashdistribution to the RISKS derivative contract; and calculates theadjusted termination claim by reducing the termination claim to zero.

In accordance with an exemplary embodiment of the claimed invention, thetype of the distribution to the underlying security is a common stockdistribution, and the derivative contracts comprise OWLS and RISKSderivative contracts. After the common stock distribution, eachderivative contract is now based on the same economic interest of atleast two shares of the underlying security and at least one share ofthe distributed common stock as result of the common stock distribution.That is each derivative contract is now based on the economic interestof the combined securities. The aforesaid claimed method adjusts one ormore provisions of each derivative contract based on the type ofdistribution to the combined securities as result of the corporateevent. At termination of the OWLS derivative contract, the aforesaidclaimed method allocates the OWLS percentage of the common stockdistribution to the OWLS derivative contract based on the value of theOWLS derivative contract as a percentage of the combined value of theOWLS and RISKS derivative contracts. At termination of the RISKSderivative contract, the aforesaid claimed method allocates the RISKSpercentage of the common stock distribution to the RISKS derivativecontract based on the value of the RISKS derivative contract as apercentage of the combined value of the OWLS and RISKS derivativecontracts. Preferably, a cash payment is provided in lieu of fractionalshares allocated to the OWLS and RISKS derivative contracts.

In accordance with an exemplary embodiment of the claimed invention, thetype of the distribution to the underlying security is a non-commonstock securities distribution, and the derivative contracts compriseOWLS and RISKS derivative contracts. At termination of the OWLSderivative contract, the aforesaid claimed method allocates entire saidnon-common stock securities distribution to the OWLS derivative contractif the market value of the non-common stock securities distribution isless than the present value of the termination claim. Otherwise, at thetermination of the OWLS and RISK derivative contracts, the aforesaidclaimed method allocates a portion of the non-common stock securitiesdistribution having a value equal to the present value of thetermination claim to the OWLS derivative contract and allocates theremaining portion of the non-common stock securities to the RISKSderivative contract if the market value of the non-common stocksecurities distribution is greater than or equal to the present value ofthe termination claim.

In accordance with an exemplary embodiment of the claimed invention, thetype of the distribution is a cash distribution and the derivativecontracts comprise DIVS, OWLS and RISKS derivative contracts. Theaforesaid claimed method allocates to the DIVS derivative contract aportion of the cash distribution up to the sum of a predeterminedpercentage of the cash distribution and the present value of thereduction of the dividend paid on the underlying security over theremaining term of the DIVS derivative contract. If the remaining portionof the cash distribution is less than the present value of thetermination claim, the processor allocates entire the remaining portionof the cash distribution to the OWLS derivative contract to account fordecrease in the termination claim; determines the future value of theremaining portion of the cash distribution discounted at thepredetermined rate to account for time value of money; and calculates anadjusted termination claim by reducing the termination claim by thefuture value of the remaining portion of the cash distribution. However,if the remaining portion of the cash distribution is greater than orequal to the present value of the termination claim, the processorallocates a part of the remaining portion of the cash distribution up tothe present value of the termination claim to the OWLS derivativecontract; allocates the remaining part of the remaining portion of thecash distribution to the RISKS derivative contract; and calculates theadjusted termination claim by reducing the termination claim to zero.Preferably, the processor allocates the portion of the cash distributionup to the sum of the predetermined percentage of the cash distributionmultiplied by the number of days remaining in the DIVS derivativecontract divided by the total number of days in the DIVS contract, andthe present value of the reduction of the dividend paid on theunderlying security over the remaining term of the DIVS derivativecontract.

In accordance with an exemplary embodiment of the claimed invention, thetype of the distribution to the underlying security is a common stockdistribution, and the derivative contracts comprise DIVS, OWLS and RISKSderivative contracts. After the common stock distribution, each DORSderivative contract is now based on the same economic interest of atleast two shares of the underlying security and at least one share ofthe distributed common stock as result of the common stock distribution.That is each DORS derivative contract is now based on the economicinterest of the combined securities. The aforesaid claimed methodadjusts one or more provisions of each derivative contract based on thetype of distribution to the combined securities as result of thecorporate event, and allocates the entire dividend paid on the combinedsecurities of the DORS derivative contract to the DIVS derivativecontract. At the termination of the OWLS derivative contract, theaforesaid claimed method allocates the OWLS percentage of the commonstock distribution to the OWLS derivative contract based on the expectedvalue of the OWLS derivative contract as a percentage of the expectedcombined value of the OWLS and RISKS derivative contracts. At thetermination of the RISKS derivative contract, the aforesaid claimedmethod allocates the RISKS percentage of the common stock distributionto the RISKS derivative contract based on the expected value of theRISKS derivative contract as a percentage of the expected combined valueof the OWLS and RISKS derivative contracts. Preferably, a cash paymentis provided in lieu of fractional shares allocated to the OWLS and RISKSderivative contracts

In accordance with an exemplary embodiment of the claimed invention, thetype of the distribution to the underlying security is a non-commonstock securities distribution, and the derivative contracts compriseDIVS, OWLS and RISKS derivative contracts. At the termination of theDIVS derivative contract, the aforesaid claimed method allocates to theDIVS derivative contract a portion of the cash portion of the non-commonsecurities distribution up to the sum of a predetermined percentage ofthe cash distribution and the present value of the reduction of thedividend paid on the underlying security over the remaining term of theDIVS derivative contract. The entire remaining portion of the non-commonstock securities distribution is allocated to the OWLS derivativecontract at the termination of the OWLS derivative contract if themarket value of the non-common stock securities distribution is lessthan the present value of the termination claim. Otherwise, at thetermination of the OWLS and RISKS derivative contract, if the marketvalue of the non-common stock securities distribution is greater than orequal to the present value of the termination claim, a part of theremaining portion of the non-common stock securities distribution havinga value up to the present value of the termination claim is allocated tothe OWLS derivative contract and the remaining part of the remainingportion of the non-common stock securities is allocated to the RISKSderivative contract.

In accordance with an exemplary embodiment of the claimed invention, theaforesaid claimed method the DORS derivative contracts can be forcedinto premature liquidation by the issuer of the DORS derivativecontract.

In accordance with an exemplary embodiment of the claimed invention, thenon-transitory computer readable storage medium comprises computerexecutable code for adjusting a derivative contract to account for timevalue of money due to an occurrence of a corporate event that affectsthe value of the derivative contract. The claimed code comprisesinstructions for adjusting the termination claim of the derivativecontract to account for time value of money by calculating the presentvalue of the termination claim based on time to termination of thederivative contract discounted at a predetermined rate by the processor,thereby affecting the value of the derivative contract. The derivativecontract is based on one of the economic interests of at least twoshares/units of an underlying security. The claimed code furthercomprises instructions for the processor to adjust one or moreprovisions of the derivative contract based on the type of distributionto the underlying security as a result of the corporate event and tostore the adjusted termination claim and the adjusted derivativecontract in the database.

In accordance with an exemplary embodiment of the claimed invention,aforesaid claimed code further comprises instructions for the processorto allocate the value of at least two shares/units of the underlyingsecurity into a plurality of derivative contracts. Each derivativecontract represents one of the economic interests of at least twoshares/units of the underlying security. The plurality of derivativecontracts comprises a dividend value of stock (DIVS) derivative contractrepresenting a stream of dividends distributed to a holder of at leasttwo shares of the underlying security; an option with limited stock(OWLS) derivative contract representing a nucleus of at least two sharesof the underlying security, and a residual interest in stock (RISKS)derivative contract representing speculation on future gains on thevalue of at least two shares of the underlying security.

The derivative contract comprises OWLS and RISKS derivative contract,and the type of the distribution to the underlying security is a cashdistribution. In accordance an exemplary embodiment of the claimedinvention, if the cash distribution is less than the present value ofthe termination claim, the aforesaid claimed code further comprisesinstructions for the processor to allocate the entire cash distributionto the OWLS derivative contract to account for the decrease in thetermination claim; to determine the future value of the cashdistribution discounted at the predetermined rate to account for timevalue of money; and to calculate the adjusted termination claim byreducing the termination claim by the future value of the cashdistribution. If the cash distribution is greater than or equal to thepresent value of the termination claim, the aforesaid claimed codefurther comprises instructions for the processor to allocate a portionof the cash distribution up to the present value of the terminationclaim to the OWLS derivative contract; to allocate the remaining portionof the cash distribution to the RISKS derivative contract; and tocalculate the adjusted termination claim by reducing the terminationclaim to zero.

The derivative contract comprises OWLS and RISKS derivative contract,and the type of the distribution to the underlying security is a commonstock distribution. After the common stock distribution, each derivativecontract is now based on the same economic interest of at least twoshares of the underlying security and at least one share of thedistributed common stock as result of the common stock distribution.That is each derivative contract is now based on the economic interestof the combined securities. In accordance with an exemplary embodimentof the claimed invention, the aforesaid claimed code further comprisesinstructions for the processor to adjust one or more provisions of eachderivative contract based on the type of the distribution to thecombined securities as a result of the corporate event. At thetermination of the OWLS derivative contract, the aforesaid claimed codefurther comprises instructions for the processor to allocate the OWLSpercentage of the common stock distribution to the OWLS derivativecontract based on the value of the OWLS derivative contract as apercentage of the combined value of the OWLS and RISKS derivativecontracts. At the termination of the RISKS derivative contract, theaforesaid claimed code further comprises instructions for the processorto allocate the RISKS percentage of the common stock distribution to theRISKS derivative contract based on the value of the RISKS derivativecontract as a percentage of the combined value of the OWLS and RISKSderivative contracts.

The derivative contract comprises OWLS and RISKS derivative contract,and the type of the distribution to the underlying security is anon-common stock securities distribution. In accordance an exemplaryembodiment of the claimed invention, at the termination of the OWLSderivative contract, the aforesaid claimed code further comprisesinstructions for the processor to allocate entire non-common stocksecurities distribution to the OWLS derivative contract if the marketvalue of the non-common stock securities distribution is less than thepresent value of the termination claim. At the termination of the OWLSand RISKS derivative contracts, if the market value of the non-commonstock securities distribution is greater than or equal to the presentvalue of the termination claim, the aforesaid claimed code furthercomprises instructions for processor to allocate a portion of thenon-common stock securities distribution having a value equal to thepresent value of the termination claim to the OWLS derivative contractand the remaining portion of the non-common stock securities to theRISKS derivative contract.

The derivative contract comprises DIVS, OWLS and RISKS derivativecontract, and the type of the distribution to the underlying security isa cash distribution. In accordance an exemplary embodiment of theclaimed invention, the aforesaid claimed code further comprisesinstructions for the processor to allocate to the DIVS derivativecontract a portion of the cash distribution up to the sum of apredetermined percentage of the cash distribution and the present valueof reduction of the dividend paid on the underlying security over theremaining term of the DIVS derivative contract. If the remaining portionof the cash distribution is less than the present value of thetermination claim, the aforesaid claimed code further comprisesinstructions for processor to allocate the entire remaining portion ofthe cash distribution to the OWLS derivative contract to account for thedecrease in the termination claim; to determine the future value of theremaining portion of the cash distribution discounted at thepredetermined rate to account for time value of money; and to calculatethe adjusted termination claim by reducing the termination claim by thefuture value of the remaining portion of the cash distribution. If theremaining portion of the cash distribution is greater than or equal tothe present value of the termination claim, the aforesaid claimed codefurther comprises instructions for the processor to allocate a part ofthe remaining portion of the cash distribution up to the present valueof the termination claim to the OWLS derivative contract; to allocatethe remaining part of the remaining portion of the cash distribution tothe RISKS derivative contract; and to calculate the adjusted terminationclaim by reducing the termination claim to zero. Preferably, theaforesaid claimed code further comprises instructions for the processorto allocate to the DIVS derivative contract the portion of the cashdistribution up to the sum of the predetermined percentage of the cashdistribution multiplied by the number of days remaining in the DIVSderivative contract divided by the total number of days in the DIVScontract, and the present value of the reduction of the dividend paid onthe underlying security over the remaining term of the DIVS derivativecontract.

The derivative contract comprises DIVS, OWLS and RISKS derivativecontracts, and the type of the distribution to the underlying securityis a common stock distribution. After the common stock distribution,each DORS derivative contract is now based on the same economic interestof at least two shares of the underlying security and at least one shareof the distributed common stock as result of the common stockdistribution. That is each DORS derivative contract is now based on theeconomic interest of the combined securities. In accordance with anexemplary embodiment of the claimed invention, the aforesaid claimedcode further comprises instructions for the processor to adjust one ormore provisions of each derivative contract based on the type ofdistribution to the combined securities as result of the corporateevent, and to allocate the entire dividend paid on the combinedsecurities of the DORS derivative contract to the DIVS derivativecontract. At the termination of the OWLS derivative contract, theaforesaid claimed code further comprises an instruction for theprocessor to allocate the OWLS percentage of the common stockdistribution to the OWLS derivative contract based on the expected valueof the OWLS derivative contract as a percentage of the expected combinedvalue of the OWLS and RISKS derivative contracts. At the termination ofthe RISKS derivative contract, the aforesaid claimed code furthercomprises instructions for the processor to allocate the RISKSpercentage of the common stock distribution to the RISKS derivativecontract based on the expected value of the RISKS derivative contract asa percentage of the expected combined value of the OWLS and RISKSderivative contracts.

The DORS derivative contracts comprise DIVS, OWLS and RISKS derivativecontracts, and the type of the distribution to the underlying securityis a non-common stock securities distribution. In accordance anexemplary embodiment of the claimed invention, at the termination of theDIVS derivative contract, the aforesaid claimed code further comprisesinstructions for the processor to allocate to the DIVS derivativecontract a portion of the cash portion of the non-common securitiesdistribution up to the sum of the predetermined percentage of the cashdistribution and the present value of reduction of the dividend paid onthe underlying security over the remaining term of the DIVS derivativecontract. At the termination of the OWLS derivative contract, theaforesaid claimed code further comprises instructions for the processorto allocate the entire remaining portion of the non-common stocksecurities distribution to the OWLS derivative contract if the marketvalue of the non-common stock securities distribution is less than thepresent value of the termination claim. In this case the RISKSderivative contract would terminate with no value. If the market valueof the non-common stock securities distribution is greater than or equalto the present value of the termination claim at the termination of theOWLS and RISKS derivative contracts, the aforesaid claimed code furthercomprises instructions for the processor to allocate a part of theremaining portion of the non-common stock securities distribution havinga value equal to the present value of the termination claim to the OWLSderivative contract and the remaining part of the remaining portion ofthe non-common stock securities to the RISKS derivative contract.

In accordance with an exemplary embodiment of the claimed invention, theaforesaid claimed code further comprises instructions for the processorto force premature liquidation of the DORS derivative contracts at therequest of the issuer of the DORS derivative contract.

In accordance with an exemplary embodiment of the claimed invention, thesystem for adjusting a derivative contract to account for time value ofmoney due to an occurrence of a corporate event that affects the valueof the derivative contract comprises a processor and a database. Theprocessor adjusts the termination claim of the derivative contract toaccount for time value of money by calculating the present value of thetermination claim based on time to termination of the derivativecontract discounted at a predetermined rate, thereby affecting the valueof the derivative contract, and adjusts one or more provisions of thederivative contract based on the type of distribution to the underlyingsecurity as a result of the corporate event. The derivative contract isbased on one of the economic interests of at least two shares/units ofthe underlying security. The database stores the adjusted terminationclaim and the adjusted derivative contract.

In accordance with an exemplary embodiment of the claimed invention, theaforesaid claimed processor allocates the value of at least twoshares/units of the underlying security to a plurality of derivativecontracts. Each derivative contract represents one of the economicinterests of at least two shares/units of the underlying security. Theplurality of derivative contracts comprises a dividend value of stock(DIVS) contract representing a stream of dividends distributed to aholder of at least two shares of the underlying security; an option withlimited stock (OWLS) contract representing a nucleus of at least twoshares of the underlying security, and a residual interest in stock(RISKS) contract representing speculation on future gains on the valueof at least two shares of the underlying security.

The derivative contract comprises OWLS and RISKS derivative contract,and the type of the distribution to the underlying security is a cashdistribution. In accordance an exemplary embodiment of the claimedinvention, if the cash distribution is less than the present value ofthe termination claim, the aforesaid claimed processor allocates entirecash distribution to the OWLS derivative contract to account fordecrease in the termination claim; determines the future value of thecash distribution discounted at the predetermined rate to account fortime value of money; and calculates the adjusted termination claim byreducing the termination claim by the future value of the cashdistribution. If the cash distribution is greater than or equal to thepresent value of the termination claim, the aforesaid claimed processorallocates a portion of the cash distribution up to the present value ofthe termination claim to the OWLS derivative contract, allocates theremaining portion of the cash distribution to the RISKS derivativecontract, and calculates the adjusted termination claim by reducing thetermination claim to zero.

The derivative contract comprises OWLS and RISKS derivative contract,and the type of the distribution to the underlying security is a commonstock distribution. After the common stock distribution, each derivativecontract is now based on the same economic interest of at least twoshares of the underlying security and at least one share of thedistributed common stock as result of the common stock distribution.That is each derivative contract is now based on the economic interestof the combined securities. In accordance with an exemplary embodimentof the claimed invention, the aforesaid claimed processor adjusts one ormore provisions of each derivative contract based on the type of thedistribution to the combined securities as a result of the corporateevent. At the termination of the OWLS derivative contract, the aforesaidclaimed processor allocates the OWLS percentage of the common stockdistribution to the OWLS derivative contract based on the expected valueof the OWLS derivative contract as a percentage of the expected combinedvalue of the OWLS and RISKS derivative contracts. At the termination ofthe RISKS derivative contract, the aforesaid claimed processor allocatesthe RISKS percentage of the common stock distribution to the RISKSderivative contract based on the expected value of the RISKS derivativecontract as a percentage of the expected combined value of the OWLS andRISKS derivative contracts.

The derivative contract comprises OWLS and RISKS derivative contract,and the type of the distribution to the underlying security is anon-common stock securities distribution. At the termination of the OWLSderivative contract, in accordance an exemplary embodiment of theclaimed invention, the aforesaid claimed processor allocates the entirenon-common stock securities distribution to the OWLS derivative contractif the market value of the non-common stock securities distribution isless than the present value of the termination claim. In this case theRISKS derivative contract would terminate with no value. At thetermination of the OWLS and RISKS derivative contracts, if the marketvalue of the non-common stock securities distribution is greater than orequal to the present value of the termination claim, the aforesaidclaimed processor allocates a portion of the non-common stock securitiesdistribution having a value equal to the present value of thetermination claim to the OWLS derivative contract and the remainingportion of the non-common stock securities to the RISKS derivativecontract.

The derivative contract comprises DIVS, OWLS and RISKS derivativecontract, and the type of the distribution to the underlying security isa cash distribution. In accordance an exemplary embodiment of theclaimed invention, the aforesaid claimed processor allocates to the DIVSderivative contract a portion of the cash distribution up to the sum ofthe predetermined percentage of the cash distribution and the presentvalue of reduction of the dividend paid on the underlying security overthe remaining term of the DIVS derivative contract. If the remainingportion of the cash distribution is less than the present value of thetermination claim, the aforesaid claimed processor allocates the entireremaining portion of the cash distribution to the OWLS derivativecontract to account for the decrease in the termination claim;determines the future value of the remaining portion of the cashdistribution discounted at the predetermined rate to account for timevalue of money; and calculates the adjusted termination claim byreducing the termination claim by the future value of the remainingportion of the cash distribution. If the remaining portion of the cashdistribution is greater than or equal to the present value of thetermination claim, the aforesaid claimed processor allocates a part ofthe remaining portion of the cash distribution up to the present valueof the termination claim to the OWLS derivative contract; allocates theremaining part of the remaining portion of the cash distribution to theRISKS derivative contract; and calculates the adjusted termination claimby reducing the termination claim to zero. Preferably, the aforesaidclaimed processor allocates to the DIVS derivative contract the portionof the cash distribution up to the sum of the predetermined percentageof the cash distribution multiplied by the number of days remaining inthe DIVS derivative contract divided by the total number of days in theDIVS contract, and the present value of reduction of the dividend paidon the underlying security over the remaining term of the DIVSderivative contract.

The derivative contract comprises DIVS, OWLS and RISKS derivativecontract, and the type of the distribution to the underlying security isa common stock distribution. After the common stock distribution, eachDORS derivative contract is now based on the same economic interest ofat least two shares of the underlying security and at least one share ofthe distributed common stock as result of the common stock distribution.That is each DORS derivative contract is now based on the economicinterest of the combined securities. In accordance with an exemplaryembodiment of the claimed invention, the aforesaid claimed processoradjusts one or more provisions of each derivative contract, based on thetype of distribution, to the combined securities as result of thecorporate event, and allocates the entire dividend paid on the combinedsecurities of the DORS derivative contract to the DIVS derivativecontract. At the termination of the OWLS derivative contract, theaforesaid claimed processor allocates the OWLS percentage of the commonstock distribution to the OWLS derivative contract based on the expectedvalue of the OWLS derivative contract as a percentage of the expectedcombined value of the OWLS and RISKS derivative contracts. At thetermination of the RISKS derivative contract, the aforesaid claimedprocessor allocates the RISKS percentage of the common stockdistribution to the RISKS derivative contract based on the expectedvalue of the RISKS derivative contract as a percentage of the expectedcombined value of the OWLS and RISKS derivative contracts.

The derivative contract comprises DIVS, OWLS and RISKS derivativecontract, and the type of the distribution to the underlying security isa non-common stock securities distribution. At the termination of theDIVS derivative contract, in accordance an exemplary embodiment of theclaimed invention, the aforesaid claimed processor allocates to the DIVSderivative contract a portion of the cash portion of the non-commonsecurities distribution up to the sum of the predetermined percentage ofthe cash distribution and the present value of the reduction of thedividend paid on the underlying security over the remaining term of theDIVS derivative contract. At the termination of the of the OWLSderivative contract, the aforesaid claimed processor allocates theentire remaining portion of the non-common stock securities distributionto the OWLS derivative contract if the market value of the non-commonstock securities distribution is less than the present value of thetermination claim. If the market value of the non-common stocksecurities distribution is greater than or equal to the present value ofthe termination claim at the termination of the OWLS and RISKSderivative contracts, the aforesaid claimed processor allocates a partof the remaining portion of the non-common stock securities distributionhaving a value equal to the present value of the termination claim tothe OWLS derivative contract and the remaining part of the remainingportion of the non-common stock securities to the RISKS derivativecontract.

Various other objects, advantages, and features of the claimed inventionwill become readily apparent from the ensuing detailed description, andthe novel features will be particularly pointed out in the appendedclaims.

BRIEF DESCRIPTION OF THE FIGURES

The following detailed description, given by way of example, and notintended to limit the claimed invention solely thereto, will best beunderstood in conjunction with the accompanying drawings in which:

FIG. 1 is a flow chart illustrating the activities undertaken upon theannouncement of a corporate event;

FIG. 2 is a flow chart illustrating the activities on the effective dayof the corporate event;

FIG. 3 is a chart illustrating an exemplary embodiment of the inventiveprocess which allocates funds to the OWLS and RISKS contracts of asecurity upon a corporate event triggering a full liquidation;

FIG. 4 is a chart illustrating an exemplary embodiment of the inventiveprocess which allocates funds to the DIVS, OWLS and RISKS contracts of asecurity upon a corporate event triggering a full liquidation; and

FIG. 5 is a chart illustrating an exemplary embodiment of the inventiveprocess which allocates funds to the different derivative contracts of asecurity upon a corporate event triggering a merger.

DETAILED DESCRIPTION OF THE EMBODIMENTS

Before referring to the drawings in detail, it will be understood thatfor the purposes of this invention, the terms derivatives, derivativesecurities, derivative security contracts, derivative contracts,adjustable derivative contracts and futures contracts may all be usedinterchangeably. Also, it will be understood that for the purposes ofthis invention, the terms exercise price and termination claim may beused interchangeably. It will also be understood that while the examplesherein disclose contracts having a five year time period and settling instock with European style expiration, the claimed invention will applyto contracts of longer or shorter time and can settle in stock or cashand have European or American style expiration. It will also beunderstood that the term derivatives or derivative contracts can be usedto describe the scenario where the derivative contract is based on morethan a share or unit of the underlying security. The underlying securitycan be any security that trades in an exchange or electronic exchange,such as New York Stock Exchange (NYSE), National Association ofSecurities Dealers Automated Quotations Systems (NASDAQ), etc. It isappreciated that the security includes but is not limited to a commonstock, a preferred stock, an index, an exchange-traded fund (ETFs), afamily of ETFs or a spider, bonds, commodities, warrants, etc. The term“share” and “unit” are used interchangeably herein depending on the typeof the security.

According to an embodiment of the claimed invention, upon the occurrenceof a corporate event, several financial organizations coordinate thenotification of the event to the appropriate parties, the processing,and valuation of the derivative securities at issue, and the reportingof such valuations. These financial organizations include DepositoryTrust Corporation (“DTC”), a Clearing Corporation (“CC”), and AmericusDerivatives Corporation (“ADC”). They accomplish these tasks in twoseries of events, one taking place on the date that the corporate eventis announced, and the other taking place on the actual date that thecorporate event takes effect.

In accordance with an exemplary embodiment of the claimed invention, thesystem and method processes corporate events to insure that arbitrageurslong common stock, and short DIVS, OWLS and RISKS derivative contractsare not liable for more than the value of a share of the underlyingcommon stock. The claimed invention thereby eliminates unusual exposureto corporate events for arbitrageurs, and drastically increases theliquidity for the DORS (DIVS, OWLS and RISKS) derivative contracts. Thearbitrageur long common stock and short DORS derivative contracts forthe same series can never be liable for more than the long position inthe underlying common stock.

In accordance with an exemplary embodiment of the claimed invention, theresults of any corporate event are divided and distributed between theDIVS, OWLS and RISKS as fairly as possible in relation to the investmentpurpose of each of the DORS derivative contracts prior to the announcedcorporate event.

In accordance with an exemplary embodiment of the claimed invention, theCC or OCC (“Options Clearing Corporation”) can force prematureliquidation of existing European derivative contracts insuring the DIVS,OWLS and RISKS owners/holders receive fair value for their derivativecontracts.

As illustrated in FIG. 1, a company initiates the whole process byannouncing a corporate event in step 100. The company notifiesparticipant members of DTC, which, on behalf of participant members, mayserve as the repository for the company's equity, in step 110. DTC thennotifies (i) CC, which maintains records that identify all member firmholders of the relevant derivative securities, in step 120; and (ii)DTC/CC participant firm, which can identify customer holdings, reconcilesuch holdings to ADC, and notify customers and the company of relevantinformation, in step 130. As set forth in commonly owned U.S. Pat. Nos.5,671,358 and 5,758,097, the claimed invention can be implemented usingprocessor based computers and/or servers at the DTC, ADC, CC and DTC/CCparticipant firm. The company's computer communicates with the DTC'scomputer to announce the corporate event in step 100. As it learns ofthe corporate event, the DTC's computer disseminates this information toits participants in step 110. The DTC's computer then notifies the CC'scomputer and DTC/CC participant firm's computer in step 120. The DTC/CCparticipant's computer identifies customer holdings, reconciles suchholdings to ADC's computer, and notifies customers and the companycomputers of relevant information in step 130.

ADC requests from CC, information that identifies member firm holders ofrecord of the derivative contracts pertinent to a derivative contractvaluation, and CC responds with the pertinent information in step 140.That is, the ADC's computer sends a request to the CC's computer forinformation identifying member firm holders of record of the derivativecontracts pertinent to a derivative contract valuation, and CC'scomputer responds with the pertinent information in step 140. ADC thenperforms three tasks in order to establish the valuation of the variousderivative contracts for the eligible holders of such derivativecontracts:

-   -   1. The CUSIP correlation computer means of the ADC's computer        performs a Committee on Uniform Securities Identification        Procedures (“CUSIP”) correlation for correlating the equity at        issue with the various derivative contracts related to such        equity, such as dividend value of stock (DIVS®), option with        limited stock (OWLS®) and residual interest in stock (RISKS®),        using the CUSIP data from a CUSIP file or memory storage means        in step 150;    -   2. The ADC's computer determines any needed formulas for        calculating the effect of the corporate event on the various        derivative contracts in step 160; and    -   3. The ADC's computer reports and confirms the effect on the        derivative contracts with the CC's computer in step 170.

The CC's computer then reports and confirms the effect on the derivativecontracts with DTC/CC participant firm's computer in step 180.

The second part of this process is executed on the effective date of thecorporate event as illustrated in FIG. 2. On the effective date, theCUSIP correlation computer means of the ADC's computer performs a CUSIPcorrelation computation using the CUSIP data from a CUSIP file or memorystorage means (e.g., database and other comparable computer storagedevice), correlating the equity at issue with the relevant derivativecontracts in step 200. The ADC's computer then receives pricinginformation from a Market Pricing Service computer in step 210, and usesthat pricing information along with the formulas previously determinedin step 160 (FIG. 1) to compute and store new time adjusted values forthe relevant derivative contracts in a computer file, storage disk ordatabase in step 220. It is hereby appreciated that the pricinginformation used in computing new time adjusted values may be the marketprice of one of the derivative contract based on the underlying securityon the effective date of the corporate event, or an average of themarket price over a specified period of time prior to the effective dateof the corporate event, or any other predetermined price or pricingformula. The vote apportioning computer means of the ADC's computer thenallocates and stores values to the relevant derivative contracts basedon the time adjusted valuations in the computer file, storage disk ordatabase in step 230. The ADC's computer notifies the CC's computer ofthe adjusted valuations in step 240, where the CC's computer adjusts thepositions of its member firms to reflect the adjustments made by theADC's computer. The CC's computer then transmits this adjustmentinformation to the member firms' computer in steps 250 and 255, who thenidentify customer holdings in step 260, adjust the customer holdingsaccordingly in step 270, and notify the customers through a customerstatement in step 280.

The claimed invention relates to the process undertaken by ADC in theabove examples, or similar financial organizations, in adjusting theeffected derivative contracts upon the occurrence of a corporate event.The claimed invention provides ADC, or any like organization whichprocesses derivative contracts, a process for computing the adjustmentsto such derivative contracts, which factors in the time value of money.

In accordance with an exemplary embodiment of the claimed invention asillustrated in FIG. 3 and Table 1, the derivative contract comprises anAmerican Style call option on a 100 shares of common voting stock in ablue chip corporation (XYZ) with a five (5) year fixed time period,which will be assumed to equate to 1825 days for the purposes of thecalculations for this example. The holder of the option can exercise orcall the option at any time during this time period. The holder paid$29.22 per share for this option with a strike price of $100, meaningthat the investor can purchase the 100 shares of XYZ at the price of$100 per share at any time during the allotted five year time period.One (1) year or 365 days into the allotted five (5) year time period,company ABC announces they are fully liquidating the company, paying theshareholders $120 for each share of stock they own.

TABLE 1 FULL LIQUIDATING DIVIDEND (Company ABC trading in RISKS and OWLSonly) Assumed Stock Parameters Dividend $0.00 Stock Price $105.00 Daysto Term 1460 CALLS (RISKS) Price 29.22 Years to Term 4 Covered WRITES75.78 (OWLS) Price Termination Claim $100.00 Standard Deviation 16% RiskFree Rate  6% Standard option treatment 1. The Termination Claim is notadjusted. 2. Payment to the Covered Writes is the lesser of the TC orthe liquidating dividend. 3. The CALLS receive any money left after theCovered Writes are paid. Claimed Invention: Americus derivativetreatment 1. The Termination Claim is adjusted by taking the presentvalue of the original TC discounted at the risk free rate from thetermination date to the present. 2. Payment to the Covered Writes (OWLS)is the lesser of the adjusted TC or the liquidating dividend. 3. TheCALLS (RISKs) receives any money left after the Covered Writes (OWLS)are paid Adj. Term Claim 79.21 PV of the Termination Claim discounted atthe risk free rate 79.21 = 100/[(1 + .06){circumflex over ( )}4] CALLoption (RISKS) price comparison For a Full Liquidating Dividend StandardAmericus Initial Option Treatment Price Treatment (CALLS) (RISKS) CALLOption (RISKS) $29.22 $20.00 $40.70 Price Change −9.22 11.57 PercentChange −31.56% 39.58%

According to the current known process for the handling of options in afull liquidation scenario, the option holder would exercise his option,purchasing the stock at $100 and then immediately selling that stock for$120. The option holder would realize a loss of $9.22 per share, or $922for the 100 shares, as he would gain $20 per share in proceeds afterpaying $29.22 per share for the call option. This example illustratesthe problem existing in the current treatment of derivative contracts.The option holder paid the $29.22 per share in order to speculate on theunderlying stock over a five (5) year period. Unfortunately for theoption holder, a corporate event has curtailed this period ofspeculation by four (4) years or 1,460 days. The option holder has notreceived the true benefit of his bargain.

The claimed invention changes the process of distribution in such ascenario to factor in the value of the remaining time period. Inaccordance with an exemplary embodiment of the claimed invention asillustrated in FIG. 3 and Table 1, the exercise or strike price of theABC option is discounted to provide the option holder with adistribution that reflects the value of the 1,460 lost days ofspeculation. Any discounting formula may be used to factor in the 1,460lost days. In Table 1, the strike price is discounted with the followingformula:

S=E/(1+r)^(y)

S is the new discounted strike price; for the purposes of this exampleassume that E, the original strike price, is $100, and r, the risk freerate of interest, is 6%, and y, the remaining period of time on theoption contract, is 1460/365 or 4. According to this discount formulathe new strike price, S=100/(1.06)⁴=$79.21. According to the readjustedstrike price, S, the option holder now gains proceeds equal to thedifference between $120 and $79.21, or $40.79 per share, which is $20.79per share more than the proceeds obtained using the standard treatmentof options. These proceeds result in a profit of $40.79−$29.22 pershare, or $11.57 per share, or $1,157 for the 100 shares. The inventivetreatment of this derivative contract provides the option holder with areturn on his investment of 39.58% as opposed to the 31.5% loss ofcapital experienced with the standard derivative treatment. While theholder of the call option realizes more profit, the writer or seller ofthe option receives less money for his shares of ABC stock. The optionwriter or seller now only receives $79.21 per share of ABC stock, whichis $20.79 less than the amount he would have received using the standardtreatment of option contracts in this scenario. Assuming that the riskfree rate of interest is 6%, the option writer or seller, however, couldinvest his money in short term treasury bonds with the same risk freerate and recoup the full $100 in 1460 days, which is the remaining termof the option contract.

In accordance with an exemplary embodiment of the claimed invention asillustrated in FIG. 4 and Table 2, the inventive method is applied to adifferent type of derivative contract. The adjustable derivativecontracts are based on the underlying common stock of XYZ corporation,specifically each derivative contract is based on one of the economicinterests of two or more shares of the underlying common stock of XYZcorporation. In accordance with an exemplary aspect of the claimedinvention, the value of the underlying security is divided and allocatedto three adjustable derivative contracts: (1) the adjustable DIVScontract represents the stream of dividends distributed to the holdersof each share of XYZ stock; (2) the adjustable RISKS contract representsthe speculation on future gains on the value of each share of XYZ stock,which is similar, but not identical, to a call option on XYZ stock; and(3) the adjustable OWLS contract represents the nucleus of a share ofXYZ stock, absent the dividend and speculative aspects of that stock,which is similar, but not identical to holding XYZ stock after writing acall option on the dividends and a call option on that stock above atermination claim. Strictly speaking, the adjustable OWLS contract issimilar to holding the stock and writing calls on the appreciation andthe dividend. It is appreciated that all adjustable OWLS and RISKScontracts can be settled in cash or securities depending on thederivative contract. The concepts and terminology associated with thesethree derivative contracts based on an underlying stock are fully setforth in commonly owned U.S. Pat. Nos. 5,671,358 and 5,758,097, whichare incorporated by reference herein in their entirety.

In accordance with this exemplary embodiment of the claimed invention,investors may purchase one or more of the three adjustable derivativecontracts, each adjustable derivative contract being based on one of thethree economic interests of a security, as European Style, five (5) yearderivative contracts, meaning that the derivative contract would have afive year term and it can only be exercised at the end of this 5 yearperiod. The three adjustable derivative contracts based on threedifferent economic interests of two or more shares/units of a security,respectively, may not be exercised during the 5 year period, but may befreely traded throughout that time period. It is anticipated that thevalue of three adjustable derivate contracts combined, each based on oneof the three economic interests of the underlying security, will closelyapproximate the market price of the underlying security at any time.

The writer of the adjustable DIVS contract would pay the holder of thisderivative contract the dividends that are distributed on the underlyingsecurity throughout the 5 year period. The value and price of thisderivative will approach zero (0) by the end of the 5 year term. Theprice of the adjustable DIVS derivative contract is always based on theexpected remaining nominal dividend distribution for the XYZ stock forthat 5 year term.

The writer of the adjustable RISKS contract would deliver to the holderof this derivative contract, at the end of the 5 year term, stock orcash worth the amount that the price of XYZ stock at the time is abovethe termination claim, which is similar but not identical to a strikeprice. This would represent a settlement of differences between thetermination claim and the current market price of the stock attermination. The adjustable RISKS contract would state whether thesettlement of the differences is paid in cash or securities. If at theend of 5 years, shares of XYZ are trading at or below the terminationclaim, then the holder of the adjustable RISKS contract receivesnothing. If, however, the price of XYZ stock is trading above thetermination claim at the end of the five year period, the holder of theadjustable RISKS contract receives the difference between the marketprice of XYZ stock and the termination claim. The termination claim isset at the beginning of the 5 year period, and the adjustable RISKScontract is priced accordingly. During the five year period, theadjustable RISKS contract can be priced similar to a call option.

The adjustable OWLS contract is what remains of a share of XYZ stockafter the adjustable DIVS contract and adjustable RISKS contract havebeen removed. The holder of this derivative contract at the end of the 5year period receives the price of the underlying XYZ share up to thetermination claim. If the market price of XYZ shares at the end of the 5year period is equal to or greater than the termination claim, then theholder of the OWLS contract is paid an amount equal to the terminationclaim, paid in either underlying security or cash pursuant to the termsof the derivative contract. If XYZ's market price is below thetermination claim at the end of the 5 year period, then the holder ofthe adjustable OWLS contract receives the value of the full price of thestock in either underlying security or cash pursuant to the terms of thederivative contract.

It is appreciated that the value of the common stock can be furtherdivided into four (4) or more adjustable derivative contracts. Forexample, in addition to the adjustable RISKS and DIVS, the OWLScontracts can be further subdivided into levels of appreciation withdifferent termination claims. The adjustable OWLS contract describedabove can be subdivided into adjustable OWLS1 contract with atermination claim of $50, adjustable OWLS2 contract with a terminationclaim of $75, and adjustable OWLS3 contract with a termination claim of$100. Once the 5 year period is over, the holders of (i) adjustableOWLS1 contract would receive the market price of XYZ up to the $50termination claim; (ii) adjustable OWLS2 contract would receive anyappreciation of XYZ common stock over $50 up to the $75 terminationclaim; and (iii) adjustable OWLS3 contract would receive anyappreciation of XYZ common stock over $75 up to the $100 terminationclaim. The market would price these derivative contracts according tothe relative risk of the derivative contract with the adjustable OWLS1contract being the least risky of the three adjustable OWLS contractsand the adjustable OWLS3 contract being the most risky of the threeadjustable OWLS contracts. The concepts described herein for the threeadjustable derivative contracts, each based on one of the economicinterests of the underlying security, can just as easily be applied tofour or more adjustable derivative contracts.

A corporate event, such as the sale of XYZ, triggers a full liquidatingdividend of XYZ shares prior to the expiration of the 5 year period forthe holders of the adjustable DIVS, RISKS, and OWLS contracts. The saleoccurs 365 days into the 5 year term (assuming 365 days in a year forsimplicity of calculations) leaving 1460 days (4.0 years) on the term ofthe adjustable DIVS, RISKS, and OWLS contracts. For the purposes of thisexample, assume that the termination claim (TC) was set at $100, therisk free rate, r, is 6.00%, and the annual dividend is $5. Under astandard-like option treatment, the DIVS contract holders would receivenothing from such a distribution. Additionally, the RISKS contractholders would not get the benefit of the full five year period to allowthe stock to appreciate as they had anticipated. The OWLS contractholders would benefit unfairly as they would receive the full benefit oftheir bargain without having to wait the full 5 year term. If theliquidating dividend was $120, the three adjustable derivative contractswould receive the following distributions: DIVS contract holders wouldreceive $0, RISKS contract holders would receive $20, and the OWLScontract holders would receive $100. That is, the termination claim isnot adjusted to reflect the lost period of time for the adjustable RISKScontract holders and the adjustable DIVS contract holders simple losetheir stream of income.

In accordance with an exemplary embodiment of the claimed invention asillustrated in FIG. 4 and Table 2, a full liquidating dividend wouldresult in the following distributions that account for the time value ofmoney: first, the adjustable DIVS contract holder would receive thepresent value of the remaining expected nominal dividend payments,which, for this example, is equal to $17.84. Second, the terminationclaim is discounted to represent its present value considering thatthere are 4.0 years remaining on the term of the derivatives. Using the6.00% risk free rate, the original TC of $100 is reset to its presentvalue of $79.21. Accordingly, holders of the adjustable OWLS contractreceive $79.21 per share. Finally, the holders of the adjustable RISKScontract receive all of the remaining distribution, which for thisexample is $22.95 per share. That is, the claimed invention adjusts oneor more exemplary terms of the derivative contract but not limited tothe following: the termination claim, the settlement or terminationdate, the underlying securities, the distribution or payment.

TABLE 2 FULL LIQUIDATING DIVIDEND (Company XYZ trading in OWLS, RISKSand DIVS) Assumed Stock Parameters and Contract Prices Dividend $5.00Stock Price $105.00 Days to Term 1460 RISKS Price 15.32 Years to Term 4OWLS Price 71.84 Termination Claim $100.00 DIVS Price (b) 17.84 StandardDeviation 16% Risk Free Rate (a)  6% (a) The interest rate on Treasuryobligations matched to the RISKS termination date. (b) Based on the riskfree rate and assuming no dividend growth 1. The DIVS receives thepresent value of the remaining nominal dividends discounting at the riskfree rate. 2. The Termination Claim is adjusted by taking the presentvalue of the original TC discounted at the risk free rate. 3. Payment tothe OWLS is the lesser of the adjusted TC or the liquidating dividendreduced by the amount paid to the DIVS. 4. The RISKS receives any moneyleft after the OWLS and DIVS are paid. DIVS Payment $17.84 Present Valueof the expected future dividends discounted at the risk free rateAdjusted Term $79.21 PV of the Termination Claim discounted at the Claimrisk free rate 79.21 = 100/[(1 + .06){circumflex over ( )}4] LiquidatingDividend $120.00 $130.00 $140.00 $150.00 Value of DIVS 17.84 17.84 17.8417.84 Liq Div less DIVS 102.16 112.16 122.16 132.16 Value of OWLS 79.2179.21 79.21 79.21 Value of RISKS 22.95 32.95 42.95 52.95

In accordance with an exemplary embodiment of the claimed invention asillustrated in FIG. 5 and Table 3, XYZ corporation participates in amerger with ABC corporation. If XYZ is the surviving corporation, thenno distributions are made and no adjustments need to be made to theadjustable derivative contracts based on the stock of XYZ corporation.If the XYZ is not the surviving company, then a few options arise. Oneexample is that no distributions are made, and the surviving company'sstock simply replaces the common stock as the underlying assets for theadjustable derivative contracts. Another example involves theacquisition of XYZ for stock and cash. For this latter example, theadjustable derivative contracts will be adjusted as for a partialliquidating dividend as discussed in relation to Table 5 herein, withthe remaining stock underlying the adjustable DIVS, OWLS and RISKScontracts until the end of the contract period, i.e., 5 years.

TABLE 3 MERGERS (Company XYZ trading in OWLS, RISKS and DIVS) 1. If thesurviving company is the issuer of the derivative contracts, noadjustments for the DIVS, OWLS and RISKS will be made. 2. If the issueris not the surviving company, the stock of the acquiring company willunderlie the derivative contracts. 3. If the original company isacquired for stock and cash, the derivative contracts will be adjustedas for a partial liquidating dividend for the cash portion. 4. The DIVSholder will receive the dividends paid by the company after the merger.

In accordance with an exemplary embodiment of the claimed invention asillustrated in Table 4, XYZ issues a special dividend, which is not partof the stream of dividends anticipated by the holders of XYZ commonstock. XYZ, whose shares at the time are trading on the market at$105/share, issues a special dividend of $10.00 with 1460 days remainingin the term of the derivative contracts.

TABLE 4 SPECIAL DIVIDEND (Company XYZ trading in OWLS, RISKS andDIVS) 1. The DIVS receives a portion of any special dividendrepresenting up to 3% of the underlying stock price, or a percentagespecified in the contract, of the stock's price on the ex-date of thespecial dividend. This payment may be reduced to reflect the time leftin the contract. 2. The OWLS receives any remaining portion of thespecial dividend. 3. The value of the special dividend, reduced by thepayment to the DIVS, is adjusted to be its future value discounted atthe risk free rate. 4. The Termination Claim is reduced by the futurevalue from 3. Special Dividend $10.00 DIVS Payment $3.15 Based on theamount of the special dividend and 3.0% of the stock's price 3.15 =105 * .030 Payment to OWLS $6.85 Portion of the special dividend payableto OWLS 6.85 = 10.00 − 3.15 Future Value of Dividend $8.65 Future Valueof the SD, reduced by the DIVS payment, discounted by the risk free rate$8.65 = (10.00 − 3.15) * (1 + 0.06) {circumflex over ( )} (1460/365)Adjusted Term Claim $91.35 Term Claim reduced by the future value of thespecial dividend. This value is used to determine the payout to the OWLSand RISKS on the termination date 91.35 = 100.00 − 8.65 Expected Ex-dateValues as the Result of a Special Dividend Stock $95.00 Stock pricereduced by the special dividend RISKS 12.72 Calculated (Black & Scholes)using $95 stock price, 91.35 adjusted Termination Claim and $5.00dividend DIVS 17.84 PV of 4 years of nominal dividends ($5.00)discounted at the risk free rate OWLS 64.44 Residual value based on thenew stock, RISKS and DIVS OWLS IRR 9.12% OWLS IRR going from 64.44 to91.35 in 1460 days

Again, one possible treatment of special dividends would result in thefollowing distributions: the adjustable DIVS and RISKS contract holderswould receive $0 from this distribution, the adjustable OWLS contractholders would receive the full $10/share, and the termination claimwould remain unchanged. In alternative treatments, the adjustable DIVScontract holder receives the entire special dividend; or the adjustableDIVS and OWLS contract holders, each receives a portion of the specialdividend based on a predetermined formula.

In accordance with an exemplary embodiment of the claimed invention,each derivative contract is based on 2 or more shares/units of theunderlying security. In the following example the prices below are perunderlying share/unit per contract.

In accordance with an exemplary embodiment of the claimed invention asillustrated in Table 4, the distributions are made to the adjustablederivative contract holders in the context of the time value of money.Assume for the purposes of this example that the termination claim wasset at $100, the adjustable OWLS contract is currently trading at$71.84. The adjustable DIVS contract holder receives the portion of thespecial dividend representing a specified percentage of the currentmarket price of the underlying equity security up to the amount of thespecial dividend. This percentage may be determined by several methods,including, but not limited to the following: ADC may set the percentageprior to the issuance of the adjustable DIVS contract; ADC may set itupon the issuance of the special dividend; a special committee withinthe clearing corporation may be in charge of setting it; it may be thefunction of another variable such as the risk free rate of return; itmay be standardized by the financial industry. In this example, assumethat the adjustable DIVS contract receive a distribution from thespecial dividend up to 3% of the stock's price, which in this case is$105*0.03 or $3.15. If the special dividend is less than 3% of thestock's price, then only the adjustable DIVS contract holderparticipates in the distribution and no other adjustments need be made.In this example, the special dividend is $10.00, so the adjustable DIVScontract holder gets a $3.15/share distribution, and there remains $6.85to be distributed. The adjustable OWLS contract holder receives theremainder of the special dividend, in this case $6.85. The terminationclaim would then be adjusted to reflect the current $6.85 distributionto the adjustable OWLS contract holders. The termination claim can beadjusted by reducing it by the future value of the $6.85 distributionusing the 6.0% risk free rate for the adjustable OWLS contract, whichequals $6.85*(1+0.06)^(4.0) or $8.65. The termination claim is reducedto $100−$8.65 or $91.35 to fairly reflect the future value of thecurrent distribution to the adjustable OWLS contract holders, which actslike an early withdrawal of their initial investment for the adjustableOWLS contract holders. The adjustable RISKS contract holders are nolonger penalized upon XYZ's distribution of special dividends, allowingthem to recoup the loss of capital to the corporation, which is likelyto be reflected in a lower stock price, through a properly reducedtermination claim.

In accordance with an exemplary embodiment of the claimed invention asillustrated in Table 5, XYZ corporation issues a partial liquidatingdividend (PLD). First, the adjustable DIVS contract holders will receivethe present value of any reduction in the dividends paid on theunderlying stock. The PLD will then be adjusted by deducting anypayments to the adjustable DIVS contract holders. The adjusted PLD willbe denoted as PLD_(n). Then the present value of the termination claim(TC) is compared to the PLD_(n). If the present value of the TC isgreater than the PLD_(n), then (i) the TC is adjusted by deducting fromit the future value of the PLD_(n), which is based on the potential IRRof the current market price of the adjustable OWLS contract needed toreach the TC upon expiration of the derivative; and (ii) the adjustableOWLS contract holders are paid the full PLD_(n). If, however, thePLD_(n) is greater than or equal to the present value of the terminationclaim, then (i) the adjustable OWLS contract holders get paid thepresent value of the termination claim, meaning that they have been paidon their investment and no longer have an interest in the underlyingasset; (ii) the termination claim is adjusted to zero; (iii) theadjustable RISKS contract holders get paid the remainder of the PLD_(n),which is the PLD_(n) reduced by the present value of the TC; and (iv)any future liquidating dividends are paid to the adjustable RISKS andDIVS contract holders.

TABLE 5 PARTIAL LIQUIDATING DIVIDEND (Company XYZ trading in OWLS, RISKSand DIVS) 1. DIVS will receive the present value of the reduction, ifany, in the dividend paid on the underlying stock. 2. Adjusted PLD(PLDn) = PLD reduced by the payment to the DIVS 3. If the PLDn is lessthan the present value of the Termination Claim i. Adj. TC equals theoriginal TC reduced by the future value of the PLDn discounted at therisk free rate. ii. The OWLS are paid the adjusted PLD. 4. If the PLDnis greater than or equal to the present value of the termination claim.i. The OWLS get paid the present value of the termination claim(PV(TC)). ii. The Termination Claim is adjusted to zero. iii. The RISKSget the remaining portion of the adjusted PLD (PLDn − PV(TC)). iv. Anyfuture liquidating dividends will be paid to the RISKS and DIVS, theOWLS having been completely paid. Value of PLD $40.00 New Stock Dividend$3.50 Announced by the company Reduction in Dividend $1.50 1.50 = 5.00 −3.50, the reduction in the annual dividend due to the PLD Payment toDIVS $5.35 5.35 = PV of 1.50 for 4 years discounted at 6.0% Adjusted PLD$34.65 Portion of PLD due to the OWLS 34.65 = 40.00 − 5.35 FV ofAdjusted PLD $43.74 Future value of the PLD discounted at the risk freerate. 43.74 = 34.65 * [1 + .06 {circumflex over ( )} (1460/365)]Adjusted Term Claim $56.26 Termination Claim reduced by the future valueof the PLD. This value is used to determine the payout to the RISKS andOWLS at the termination date. 56.26 = 100 − 43.74 Expected Ex-dateValues as a Result of a Partial Liquidating Dividend Stock $65.00 Preex-date stock price reduced by the amount of the PLD RISKS $11.13 Black& Scholes RISKS price using $65.00 stock price, $56.26 adjustedTermination Claim and the $3.50 new dividend DIVS $12.49 PV of 4 yearsof $3.50 annual nominal dividends discounted at the risk free rate OWLS$41.38 New residual value of the OWLS 41.38 = 65.00 − (11.13 + 12.49)OWLS IRR 7.98% OWLS IRR going from 41.38 to 56.26 in 4 years

In accordance with an exemplary embodiment of the claimed invention asillustrated in Table 5, with 1460 days (4.0 years) left in the term ofthe adjustable derivative contracts, XYZ issues a PLD of $40.00. Theannual dividend was decreased from $5 to $3.50. As in previousembodiments, the TC is $100 and the risk free rate of return is 6.00%.Under one possible distribution, the adjustable DIVS and RISKS contractholders would have received $0 while the adjustable OWLS contractholders would have received the full $40/share and the termination claimwould have been reduced by $40 (TC=$100−$40=$60).

In accordance with an exemplary embodiment of the claimed invention asillustrated in Table 5, the PLD would have resulted in the followingdistributions and adjustments to the adjustable derivative contracts.First, the adjustable DIVS contract holders would have received apayment of $5.35 per share, which is the present value of the $1.50 lossin the annual dividend for the next 4.0 years, to make up for thedecrease in dividend payments resulting from this PLD. The PLD is thenadjusted via a reduction of $5.35, leaving a PLD_(n) of $34.65. Thisvalue is then be compared with the present value of the TC, which isequal to $100/(1.06)^(4.0) or $79.21. As the present value of the TC of$79.21 is greater than the PLD_(n) of $34.65, the adjustable OWLScontract holders receive the full adjusted partial liquidationdistribution of $34.65 per share of stock underlying the OWLS contract.In addition, the TC must be adjusted by a deduction of the future valueof the PLD_(n) discounted by the risk free rate of 6.0%. The futurevalue of the PLD_(n) is equal to $34.65*(1.06)^(4.0) or $43.74, and theadjusted TC should now be $56.26. Hence, at the end of the five yearperiod, if the stock price is trading at any price above $56.26, thatexcess will belong to the adjustable RISKS contract holders while theadjustable OWLS contract holders would only receive $56.26 per share atthat time, in addition to their current $34.65 distribution.

Corporate Events Involving a Cash Distribution

In accordance with an exemplary embodiment of the claimed invention asillustrated in Table 6, the Cash Distributions as result of corporateevents are made to the adjustable derivative contract holders in thecontext of the time value of money. Assume for the purposes of thisexample that the termination claim was set at $100, the adjustable OWLScontract is currently trading at $71.84, the adjustable DIVS contract iscurrently trading at $17.84, adjustable RISKS contract is currentlytrading at $15.32, number of days to termination or number of daysremaining in the contract (DTM) is 1460 days, and each adjustablecontract is based on 100 shares of security, e.g., common stock. If onlyadjustable OWLS and RISKS are trading, then the processor calculates thepresent value of the Termination Claim (PVTC) based on the time totermination of the contract discounted at the risk free rate to allocatethe Cash Distribution between the adjustable OWLS and RISKSholders/owners. If the Cash Distribution is less than the present valueof the Termination Claim (PVTC), then the entire Cash Distribution ispaid to the adjustable OWLS holder/owner and the adjustable RISKSholder/owner will receive no portion of the Cash Distribution. Theoriginal Termination Claim is reduced by the future value of the CashDistribution based on the risk free rate to obtain the adjustedTermination Claim. However, if the Cash Distribution is greater than orequal to the present value of the Termination Claim, then the adjustableOWLS holder gets a portion of the Cash Distribution equal to the presentvalue of the Termination Claim (PVTC). The Termination Claim is adjustedto zero and the adjustable RISKS holder gets the remaining portion ofthe Cash Distribution (Cash Distribution minus PVTC).

If all three adjustable DORS derivative contracts are trading, then theadjustable DIVS holder/owner gets an amount up to the sum of (i) fivepercent (5.0%) of the Cash Distribution multiplied by the number of daysremaining in the Contract divided by the total number of days in thecontract (DTM/total days of contract); and (ii) the present value of thereduction of the dividend, if any, paid on the underlying stock over theremainder of the term of the contract. It is appreciated that themaximum payment to the DIVS holder/owner is the value of the CashDistribution. The Cash Distribution is reduced by the payment to theadjustable DIVS holder/owner to obtain an Adjusted Cash Distribution(Cashn) to be allocated between the adjustable OWLS and RISKSholders/owners. The processor calculates the present value of theTermination Claim (PVTC) based on the time to termination of thecontract discounted at the risk free rate. If the Adjusted CashDistribution (Cashn) is less than the present value of the TerminationClaim (PVTC), then the entire Adjusted Cash Distribution is paid to theadjustable OWLS holder/owner and the adjustable RISKS holder/owner willreceive no portion of the Cash Distribution. The original TerminationClaim is reduced by the future value of the Adjustable Cash Distributionbased on the risk free rate to obtain the adjusted Termination Claim.However, if the Cash Distribution is greater than or equal to thepresent value of the Termination Claim, then the adjustable OWLS holdergets a portion of the Adjusted Cash Distribution (Cashn) up to thepresent value of the Termination Claim (PVTC). The Termination Claim isadjusted to zero and the adjustable RISKS holder gets the remainingportion of the Adjusted Cash Distribution (Adjusted Cash Distributionminus PVTC).

TABLE 6 CORPORATE EVENTS INVOLVING A CASH DISTRIBUTION (Trading in OWLS,RISKS and DIVS) (Contract based on 100 shares) Assumed Stock Parametersand Derivative Contract Prices Dividend $5.00 Stock Price $105.00 Daysto Term 1460 RISKS Price (b) $15.32 Years to Term 4 OWLS Price $71.84Termination Claim $100.00 DIVS Price (c) $17.84 Standard Deviation 16%Risk Free Rate (a)  6% (a) The interest rate on Treasury obligationsmatched to the RISKS termination date. (b) RISKS pricing based onBlack/Scholes formula. (c) Based on the risk free rate and assuming nodividend growth In the case of no DIVS trading, then skip steps 1-2 andstart with step 3: 1. The payment to the DIVS is the sum up to: a. 5.0%of the cash distribution multiplied by the number of days remaining inthe contract divided by the total number of days in the contract(DTM/Total days of contract); and b. The present value of the reductionof the dividend, if any, paid on the underlying stock over the reminderof the term of the contract. 2. Adjusted Cash (Cashn) = Cashdistribution reduced by the payment to the DIVS. 3. Calculate thepresent value of the Termination Claim (PVTC) based on the time totermination of the contract discounted at the risk free rate. 4. If theCashn is less than the present value of the Termination Claim: a. Theadjusted TC equals the original TC reduced by the future value of theCashn based on the risk free rate; and b. The OWLS is paid adjusted Cash(Cashn). 5. If the Cashn is greater than or equal to the present valueof the Termination Claim: a. The OWLS get paid the present value of theTermination Claim (PVTC); b. The termination claim is adjusted to zero;and c. The RISKS get paid the remaining portion of the adjusted Cash(Cashn − PVTC)

As illustrated in Table 7, the exemplary corporate event involves a CashDistribution of $40 in the form of a partial liquidating dividend (PLD)with assumed stock parameters and derivative contract prices as setforth in Table 6 and announcement of a new stock dividend of $3.50 bythe company. The annual dividend is reduced by $1.50 ($5.00−$3.50) dueto the extraordinary cash payment. In accordance with an exemplaryembodiment of the claimed invention, the adjustable DIVS holder/ownergets an amount up to the sum of (i) five percent (5.0%) of the CashDistribution multiplied by the number of days remaining in the Contractdivided by the total number of days in the contract (DTM/total days ofcontract) or $1.60=$50*0.05*(1460/1825); and (ii) the present value ofthe reduction of the dividend, if any, paid on the underlying stock overthe remainder of the term of the contract or $5.35=PV of $1.50 for 4years discounted at 6.0%. The Cash Distribution is reduced by thepayment to the adjustable DIVS holder/owner to obtain an Adjusted CashDistribution ($33.05=$40.00−$6.95) to be allocated between theadjustable OWLS and RISKS holders/owners. The processor calculates thepresent value of the Termination Claim (PVTC) based on the time totermination of the contract discounted at the risk free rate or$79.21=$100/[(1+0.06)̂(1460/365)]. Since the Adjusted Cash Distributionof $33.05 is less than the present value of the Termination Claim(PVTC=$79.21), the entire Adjusted Cash Distribution of $33.05 is paidto the adjustable OWLS holder/owner and the adjustable RISKSholder/owner will receives no portion of the Cash Distribution. Theprocessor reduces the original Termination Claim by the future value ofthe Adjustable Cash Distribution to the adjustable OWLS holder/ownerbased on the risk free rate (or $41.72=$33.05*[(1+0.06)̂(1460/365)]) toobtain the Adjusted Termination Claim of $58.28=$100−$41.72. That is,the Adjusted Termination Claim is obtained by reducing the TerminationClaim by the future value of the payment to the adjustable OWLSholder/owner and the payment of the Cash Distribution is made to theOWLS holder/owner to make up for the decrease in the Termination Claim.The Adjusted Termination Claim is used to determine the payout to theadjustable OWLS and RISKS holders/owners at the termination date.

TABLE 7 PARTIAL LIQUIDATING DIVIDEND (Trading in OWLS, RISKS andDIVS) 1. The payment to the DIVS is the sum up to: a. 5.0% of the cashdistribution multiplied by the number of days remaining in the contractdivided by the total number of days in the contract (DTM/Total days ofcontract); and b. The present value of the reduction of the dividend, ifany, paid on the underlying stock over the reminder of the term of thecontract. 2. Adjusted Cash (Cashn) = Cash distribution reduced by thepayment to the DIVS. 3. Calculate the present value of the TerminationClaim (PVTC) based on the time to termination of the contract discountedat the risk free rate. 4. If the Cashn is less than the present value ofthe Termination Claim: a. The adjusted TC equals the original TC reducedby the future value of the Cashn based on the risk free rate; and b. TheOWLS is paid adjusted Cash (Cashn). 5. If the Cashn is greater than orequal to the present value of the Termination Claim: a. The OWLS getpaid the present value of the Termination Claim (PVTC); b. Thetermination claim is adjusted to zero; and c. The RISKS get paid theremaining portion of the adjusted Cash (Cashn − PVTC) Cash Distribution$40.00 New Stock Dividend $3.50 Announced by the company Reduction inDividend $1.50 1.50 = 5.00 − 3.50, the reduction in the annual dividenddue to the extraordinary cash payment Payment to DIVS $6.95 i. Portionof Cash $1.60 $1.60 = $40*.05*(1460/1825) ii. PV of Div decrease $5.35$5.35 = PV of $1.50 for 4 years discounted at 6.0% PV of Term Claim$79.21 $79.21 = $100/[(1 + .06){circumflex over ( )}(1460/365)] AdjustedCash $33.05 Cash less payment to DIVS ($33.05 = $40 − $6.95) Payment toOWLS $33.05 Portion of Cash due to OWLS to make up for the decrease inthe Termination Claim ($33.05 = Adjusted Cash) FV of Payment to OWLS$41.72 Future value of the OWLS payment discount at the risk free rate.$41.72 = $33.05 * [1 + .06 {circumflex over ( )} (1460/365)] AdjustedTerm Claim $58.28 Termination Claim reduced by the future value of thepayment to the OWLS. This value is used to determine the payout to theOWLS and RISKS at the termination date. ($58.28 = $100 − $41.72)Expected Ex-date Values as a Result of the Cash Distribution Stock$65.00 Ex-date stock price ($65 = $105 − $40) RISKS $10.13 Black &Scholes RISKS price using $65.00 stock price, $58.28 adjustedTermination Claim and the $3.50 new dividend DIVS $12.49 PV of 4 yearsof $3.50 annual nominal dividends discounted at the risk free rate OWLS$42.38 Residual value of the OWLS 42.38 = 65.00 − (10.13 + 12.49) OWLSIRR (a) 8.29% OWLS IRR going from $42.38 to 58.28 in 4 years (a)Investing in more OWLS with the received cash raises the originalinvestment back to 8.62% IRR

As illustrated in Table 8, the exemplary corporate event involves a CashDistribution of $40 in the form of a partial liquidating dividend (PLD)with assumed stock parameters and derivative contract prices as setforth in Table 6. Also, it is assumed that only adjustable OWLS andRISKS are trading. In accordance with an exemplary embodiment of theclaimed invention, the processor calculates the present value of theTermination Claim (PVTC) based on the time to termination of thecontract discounted at the risk free rate to allocate the Adjusted CashDistribution (which equals the Cash Distribution because there is noDIVS in this example) between the adjustable OWLS and RISKSholders/owners. The present value of the Termination Claim (PVTC) is$79.21=$100/[(1+0.06)̂(1460/365)]. Since the Adjusted Cash Distributionof $40 is less than the present value of the Termination Claim(PVTC=$79.21), the entire Adjusted Cash Distribution of $40 is paid tothe adjustable OWLS holder/owner and the adjustable RISKS holder/ownerwill receives no portion of the Cash Distribution. The processor reducesthe original Termination Claim by the future value of the AdjustableCash Distribution to the adjustable OWLS holder/owner based on the riskfree rate (or $50.50=$40*[(1+0.06)̂(1460/365)]) to obtain the AdjustedTermination Claim of $49.50=$100−$50.50. That is, the AdjustedTermination Claim is obtained by reducing the Termination Claim by thefuture value of the payment to the adjustable OWLS holder/owner and thepayment of the Cash Distribution is made to the OWLS holder/owner tomake up for the decrease in the Termination Claim. The AdjustedTermination Claim is used to determine the payout to the adjustable OWLSand RISKS holders/owners at the termination date.

TABLE 8 PARTIAL LIQUIDATING DIVIDEND (Trading in OWLS and RISKS) 1.Calculate the present value of the Termination Claim (PVTC) based on thetime to termination of the contract discounted at the risk free rate. 2.If the Cash Distribution is less than the present value of theTermination Claim: a. The adjusted TC equals the original TC reduced bythe future value of the Cash Distribution based on the risk free rate;and b. The OWLS is paid adjusted Cash (Cashn). 3. If the Cashn isgreater than or equal to the present value of the Termination Claim: a.The OWLS get paid the present value of the Termination Claim (PVTC); b.The termination claim is adjusted to zero; and c. The RISKS get paid theremaining portion of the adjusted Cash (Cashn − PVTC) Cash Distribution$40.00 New Stock Dividend N/A No DIVS trading Reduction in Dividend N/APayment to DIVS N/A No DIVS trading i. Portion of Cash N/A ii. PV of Divdecrease N/A PV of Term Claim $79.21 $79.21 = $100/[(1 + .06){circumflexover ( )}(1460/365)] Adjusted Cash $40.00 Cash less payment to DIVS ($40= $40 − $0) Payment to OWLS $40.00 Portion of Cash due to OWLS to makeup for the decrease in the Termination Claim ($40 = Adjusted Cash) FV ofPayment to OWLS $50.50 Future value of the OWLS payment discount at therisk free rate. $50.50 = $40 * [1 + .06 {circumflex over ( )}(1460/365)] Adjusted Term Claim $49.50 Termination Claim reduced by thefuture value of the payment to the OWLS. This value is used to determinethe payout to the OWLS and RISKS at the termination date. ($49.50 = $100− $50.50) Expected Ex-date Values as a Result of the Cash DistributionStock $65.00 Ex-date stock price ($65 = $105 − $40) RISKS $26.43 Black &Scholes RISKS price using $65.00 stock price, $49.50 adjustedTermination Claim and no dividend OWLS $38.57 Residual value of the OWLS$38.57 = 65.00 − 26.43 OWLS IRR (a) 6.44% OWLS IRR going from $38.57 to$49.50 in 4 years (a) Investing in more OWLS with the received cashraises the original investment back to 8.62% IRR

As illustrated in Table 9, the exemplary corporate event involves a CashDistribution of $10 in the form of a special dividend with assumed stockparameters and derivative contract prices as set forth in Table 6 andannouncement of a new stock dividend of $5 by the company. The annualdividend is not reduced by the company. In accordance with an exemplaryembodiment of the claimed invention, the adjustable DIVS holder/ownergets an amount up to the sum of (i) five percent (5.0%) of the CashDistribution multiplied by the number of days remaining in the Contractdivided by the total number of days in the contract (DTM/total days ofcontract) or $0.40=$10*0.05*(1460/1825); and (ii) the present value ofthe reduction of the dividend is zero because there was no change individend. The Cash Distribution is reduced by the payment to theadjustable DIVS holder/owner to obtain an Adjusted Cash Distribution($9.60=$10.00−$0.40) to be allocated between the adjustable OWLS andRISKS holders/owners. The processor calculates the present value of theTermination Claim (PVTC) based on the time to termination of thecontract discounted at the risk free rate or$79.21=$100/[(1+0.06)̂(1460/365)]. Since the Adjusted Cash Distributionof $9.60 is less than the present value of the Termination Claim(PVTC=$79.21), the entire Adjusted Cash Distribution of $9.60 is paid tothe adjustable OWLS holder/owner and the adjustable RISKS holder/ownerwill receives no portion of the Cash Distribution. The processor reducesthe original Termination Claim by the future value of the AdjustableCash Distribution to the adjustable OWLS holder/owner based on the riskfree rate (or $12.12=$9.60*[(1+0.06)̂(1460/365)]) to obtain the AdjustedTermination Claim of $87.88=$100−$12.12. That is, the AdjustedTermination Claim is obtained by reducing the Termination Claim by thefuture value of the payment to the adjustable OWLS holder/owner and thepayment of the Cash Distribution is made to the OWLS holder/owner tomake up for the decrease in the Termination Claim. The AdjustedTermination Claim is used to determine the payout to the adjustable OWLSand RISKS holders/owners at the termination date.

TABLE 9 SPECIAL DIVIDEND (Trading in OWLS, RISKS and DIVS) 1. Thepayment to the DIVS is the sum up to: a. 5.0% of the cash distributionmultiplied by the number of days remaining in the contract divided bythe total number of days in the contract (DTM/Total days of contract);and b. The present value of the reduction of the dividend, if any, paidon the underlying stock over the reminder of the term of the contract.2. Adjusted Cash (Cashn) = Cash distribution reduced by the payment tothe DIVS. 3. Calculate the present value of the Termination Claim (PVTC)based on the time to termination of the contract discounted at the riskfree rate. 4. If the Cashn is less than the present value of theTermination Claim: a. The adjusted TC equals the original TC reduced bythe future value of the Cashn based on the risk free rate; and b. TheOWLS is paid adjusted Cash (Cashn). 5. If the Cashn is greater than orequal to the present value of the Termination Claim: a. The OWLS getpaid the present value of the Termination Claim (PVTC); b. Thetermination claim is adjusted to zero; and c. The RISKS get paid theremaining portion of the adjusted Cash (Cashn − PVTC) Cash Distribution$10.00 New Stock Dividend $5.00 Announced by the company Reduction inDividend $0.00 No change in dividend Payment to DIVS $0.40 i. Portion ofCash $0.40 $0.40 = $10*.05*(1460/1825) ii. PV of Div decrease N/A nochange in dividend PV of Term Claim $79.21 $79.21 = $100/[(1 +.06){circumflex over ( )}(1460/365)] Adjusted Cash $9.60 Cash lesspayment to DIVS ($9.60 = $10 − $0.40) Payment to OWLS $9.60 Portion ofCash due to OWLS to make up for the decrease in the Termination Claim($9.60 = Adjusted Cash) FV of Payment to OWLS $12.12 Future value of theOWLS payment discount at the risk free rate. $12.12 = $9.60 * [1 + .06{circumflex over ( )} (1460/365)] Adjusted Term Claim $87.88 TerminationClaim reduced by the future value of the payment to the OWLS. This valueis used to determine the payout to the OWLS and RISKS at the terminationdate. ($87.88 = $100 − $12.12) Expected Ex-date Values as a Result ofthe Cash Distribution Stock $95.00 Ex-date stock price ($95 = $105 −$10) RISKS $13.85 Black & Scholes RISKS price using $95.00 stock price,$87.88 adjusted Termination Claim and the $3.50 new dividend DIVS $17.84PV of 4 years of $5.50 annual nominal dividends discounted at the riskfree rate OWLS $63.31 Residual value of the OWLS $63.31 = 95.00 −(13.85 + 17.84) OWLS IRR (a) 8.54% OWLS IRR going from $63.31 to $87.88in 4 years (a) Investing in more OWLS with the received cash raises theoriginal investment back to 8.62% IRR

As illustrated in Table 10, the exemplary corporate event involves aCash Distribution of $10 in the form of a special dividend with assumedstock parameters and derivative contract prices as set forth in Table 6.No dividend is paid by the company. Also, it is assumed that onlyadjustable OWLS and RISKS are trading. In accordance with an exemplaryembodiment of the claimed invention, the processor calculates thepresent value of the Termination Claim (PVTC) based on the time totermination of the contract discounted at the risk free rate to allocatethe Adjusted Cash Distribution (which equals the Cash Distributionbecause there is no DIVS in this example) between the adjustable OWLSand RISKS holders/owners. The present value of the Termination Claim(PVTC) is $79.21=$100/[(1+0.06)̂(1460/365)]. Since the Adjusted CashDistribution of $10 is less than the present value of the TerminationClaim (PVTC=$79.21), the entire Adjusted Cash Distribution of $10 ispaid to the adjustable OWLS holder/owner and the adjustable RISKSholder/owner will receives no portion of the Cash Distribution. Theprocessor reduces the original Termination Claim by the future value ofthe Adjustable Cash Distribution to the adjustable OWLS holder/ownerbased on the risk free rate (or $12.62=$10*[(1+0.06)̂(1460/365)]) toobtain the Adjusted Termination Claim of $87.38=$100−$12.62. That is,the Adjusted Termination Claim is obtained by reducing the TerminationClaim by the future value of the payment to the adjustable OWLSholder/owner and the payment of the Cash Distribution is made to theOWLS holder/owner to make up for the decrease in the Termination Claim.The Adjusted Termination Claim is used to determine the payout to theadjustable OWLS and RISKS holders/owners at the termination date.

TABLE 10 SPECIAL DIVIDEND (Trading in OWLS and RISKS) 1. Calculate thepresent value of the Termination Claim (PVTC) based on the time totermination of the contract discounted at the risk free rate. 2. If theCash Distribution is less than the present value of the TerminationClaim: a. The adjusted TC equals the original TC reduced by the futurevalue of the Cash Distribution based on the risk free rate; and b. TheOWLS is paid adjusted Cash (Cashn). 3. If the Cashn is greater than orequal to the present value of the Termination Claim: a. The OWLS getpaid the present value of the Termination Claim (PVTC); b. Thetermination claim is adjusted to zero; and c. The RISKS get paid theremaining portion of the adjusted Cash (Cashn − PVTC) Cash Distribution$10.00 New Stock Dividend N/A No DIVS trading Reduction in Dividend N/APayment to DIVS N/A No DIVS trading i. Portion of Cash N/A ii. PV of Divdecrease N/A PV of Term Claim $79.21 $79.21 = $100/[(1 + .06){circumflexover ( )}(1460/365)] Adjusted Cash $10.00 Entire $10 Cash DistributionPayment to OWLS $10.00 Portion of Cash due to OWLS to make up for thedecrease in the Termination Claim ($10 = Adjusted Cash) FV of Payment toOWLS $12.62 Future value of the OWLS payment discount at the risk freerate. $12.62 = $10.00 * [1 + .06 {circumflex over ( )} (1460/365)]Adjusted Term Claim $87.38 Termination Claim reduced by the future valueof the payment to the OWLS. This value is used to determine the payoutto the OWLS and RISKS at the termination date. ($87.38 = $100 − $12.62)Expected Ex-date Values as a Result of the Cash Distribution Stock$95.00 Ex-date stock price ($95 = $105 − $10) RISKS $28.36 Black &Scholes RISKS price using $95.00 stock price, $87.38 adjustedTermination Claim and no dividend OWLS $66.64 Residual value of the OWLS$66.64 = 95.00 − 28.36 OWLS IRR (a) 7.01% OWLS IRR going from $66.64 to$87.38 in 4 years (a) Investing in more OWLS with the received cashraises the original investment back to 8.62% IRR

As illustrated in Table 11, the exemplary corporate event involves aCash Distribution of $120 in the form of a full liquidating dividendwith assumed stock parameters and derivative contract prices as setforth in Table 6. The stock dividend is now eliminated because thecompany is being liquidated. In accordance with an exemplary embodimentof the claimed invention, the adjustable DIVS holder/owner gets amountup to the sum of: (i) five percent (5.0%) of the Cash Distributionmultiplied by the number of days remaining in the Contract divided bythe total number of days in the contract (DTM/total days of contract) or$4.80=$120*0.05*(1460/1825); and (ii) the present value of the reductionof the dividend, if any, paid on the underlying stock over the remainderof the term of the contract or $17.84=PV of $5.50 for 4 years discountedat 6.0%. The Cash Distribution is reduced by the payment to theadjustable DIVS holder/owner to obtain an Adjusted Cash Distribution($97.36=$120.00−$22.64) to be allocated between the adjustable OWLS andRISKS holders/owners. The processor calculates the present value of theTermination Claim (PVTC) based on the time to termination of thecontract discounted at the risk free rate or$79.21=$100/[(1+0.06)̂(1460/365)]. Since the Adjusted Cash Distributionof $97.36 is greater than the present value of the Termination Claim(PVTC=$79.21), the Adjusted Cash Distribution of $97.36 is allocatedbetween the adjustable OWLS and RISKS holders/owners. The adjustableOWLS holder/owner gets paid a portion of the Adjusted Cash Distributionequal to the present value of the Termination Claim (PVTC) or $79.21,thereby compensating the OWLS holder/owner for the decrease in theTermination Claim. The processor reduces the Termination Claim to zerosince the OWLS holder/owner has been fully compensated. The RISKSholder/owner gets the remainder of the Adjusted Cash Distribution or$18.15=$97.36−$79.21.

TABLE 11 FULL LIQUIDATING DIVIDEND (Trading in OWLS, RISKS and DIVS) 1.The payment to the DIVS is the sum up to: a. 5.0% of the cashdistribution multiplied by the number of days remaining in the contractdivided by the total number of days in the contract (DTM/Total days ofcontract); and b. The present value of the reduction of the dividend, ifany, paid on the underlying stock over the reminder of the term of thecontract. 2. Adjusted Cash (Cashn) = Cash distribution reduced by thepayment to the DIVS. 3. Calculate the present value of the TerminationClaim (PVTC) based on the time to termination of the contract discountedat the risk free rate. 4. If the Cashn is less than the present value ofthe Termination Claim: a. The adjusted TC equals the original TC reducedby the future value of the Cashn based on the risk free rate; and b. TheOWLS is paid adjusted Cash (Cashn). 5. If the Cashn is greater than orequal to the present value of the Termination Claim: a. The OWLS getpaid the present value of the Termination Claim (PVTC); b. Thetermination claim is adjusted to zero; and c. The RISKS get paid theremaining portion of the adjusted Cash (Cashn − PVTC) Cash Distribution$120.00 New Stock Dividend $0.00 No future dividend, company is beingliquidated Reduction in Dividend $5.00 $5.00 = $5.00 − $0.00, thereduction in annual dividend due to the extraordinary cash paymentPayment to DIVS $22.64 i. Portion of Cash $4.80 $4.80 =$120*.05*(1460/1825) ii. PV of Div decrease $17.84 $17.84 = PV of $5.00for 4 years discounted at 6.0% PV of Term Claim $79.21 $79.21 =$100/[(1 + .06){circumflex over ( )}(1460/365)] Adjusted Cash $97.36Cash less payment to DIVS ($97.36 = $120 − $22.64); Adjusted Cash isgreater than PVTC Payment to OWLS $79.21 Portion of Cash due to OWLS tomake up for the decrease in the Termination Claim ($79.21 = PVTC)Adjusted Term Claim $0.00 Termination Claim reduced to $0.00 Payment toRISKS $18.15 RISKS get the remainder of the Adjusted Cash ($18.15 =$97.36 − $79.21)

As illustrated in Table 12, the exemplary corporate event involves aCash Distribution of $120 in the form of a full liquidating dividendwith assumed stock parameters and derivative contract prices as setforth in Table 6. No dividend is paid by the company. Also, it isassumed that only adjustable OWLS and RISKS are trading. In accordancewith an exemplary embodiment of the claimed invention, the processorcalculates the present value of the Termination Claim (PVTC) based onthe time to termination of the contract discounted at the risk free rateto allocate the Adjusted Cash Distribution (which equals the CashDistribution because there is no DIVS in this example) between theadjustable OWLS and RISKS holders/owners. The present value of theTermination Claim (PVTC) is $79.21=$100/[(1+0.06)̂(1460/365)]. Since theAdjusted Cash Distribution of $120 is greater than the present value ofthe Termination Claim (PVTC=$79.21), the Adjusted Cash Distribution of$120 is allocated between the adjustable OWLS and RISKS holders/owners.The adjustable OWLS holder/owner gets paid a portion of the AdjustedCash Distribution equal to the present value of the Termination Claim(PVTC) or $79.21, thereby compensating the OWLS holder/owner for thedecrease in the Termination Claim. The processor reduces the TerminationClaim to zero since the OWLS holder/owner has been fully compensated.The RISKS holder/owner gets the remainder of the Adjusted CashDistribution or $40.79=$120.00−$79.21.

TABLE 12 FULL LIQUIDATING DIVIDEND (Trading in OWLS and RISKS) 1.Calculate the present value of the Termination Claim (PVTC) based on thetime to termination of the contract discounted at the risk free rate. 2.If the Cash Distribution is less than the present value of theTermination Claim: a. The adjusted TC equals the original TC reduced bythe future value of the Cash Distribution based on the risk free rate;and b. The OWLS is paid adjusted Cash (Cashn). 3. If the Cashn isgreater than or equal to the present value of the Termination Claim: a.The OWLS get paid the present value of the Termination Claim (PVTC); b.The termination claim is adjusted to zero; and c. The RISKS get paid theremaining portion of the adjusted Cash (Cashn − PVTC) Cash Distribution$120.00 New Stock Dividend N/A No DIVS trading Reduction in Dividend N/APayment to DIVS N/A No DIVS trading i. Portion of Cash N/A ii. PV of Divdecrease N/A PV of Term Claim $79.21 $79.21 = $100/[(1 + .06){circumflexover ( )}(1460/365)] Adjusted Cash $120.00 Entire $120 CashDistribution; Adjusted Cash is greater than PVTC Payment to OWLS $79.21Portion of Cash due to OWLS to make up for the decrease in theTermination Claim ($79.21 = PVTC) Adjusted Term Claim $0.00 TerminationClaim reduced to $0.00 Payment to RISKS $40.79 RISKS get the remainderof the Adjusted Cash ($40.79 = $120.00 − $79.21)

Corporate Events Involving a Stock Distribution

In accordance with an exemplary embodiment of the claimed invention asillustrated in Table 13, the Stock Distributions as result of corporateevents are made to the adjustable derivative contract holders in thecontext of the time value of money. Assume for the purposes of thisexample that the termination claim was set at $100, the adjustable OWLScontract is currently trading at $71.84, the adjustable DIVS contract iscurrently trading at $17.84, adjustable RISKS contract is currentlytrading at $15.32, number of days to termination or number of daysremaining in the contract (DTM) is 1460 days, and each adjustablecontract is based on 100 shares of security, e.g., common stock. Theadjustable DORS derivative contracts are backed by the shares of theoriginal company, if it survives the corporate event, and additionalshares distributed as a result of the corporate event. The adjustableDIVS holder/owner receives the dividend paid on the shares underlyingthe adjustable DIVS contract as a result of the corporate event. Attermination, the value of the underlying stock is computed as the priceof each stock times the number of shares of each stock underlying theadjustable DORS derivative contract. The monetary value of the stockreceived by each adjustable DORS derivative contract is calculated as ina normal termination of the adjustable DORS derivative contract based onthe Termination Claim and the value of the underlying stock. Theadjustable RISKS holder/owner receives nothing if the combined value ofthe adjustable DIVS and OWLS derivative contract is less than theTermination Claim. The adjustable RISKS and OWLS holders/owners receivepro rata shares of the security or stock(s) underlying the adjustableRISKS and OWLS derivative contracts.

TABLE 13 CORPORATE EVENTS INVOLVING A STOCK DISTRIBUTION (Trading inOWLS, RISKS and DIVS) (Contract based on 100 shares) Assumed StockParameters and Derivative Contract Prices Dividend $5.00 Stock Price$105.00 Days to Term 1460 RISKS Price (b) 15.32 Years to Term 4 OWLSPrice 71.84 Termination Claim $100.00 DIVS Price (c) 17.84 StandardDeviation 16% Risk Free Rate (a)  6% (a) The interest rate on Treasuryobligations matched to the RISKS termination date. (b) RISKS pricingbased on Black/Scholes formula. (c) Based on the risk free rate andassuming no dividend growth 1. The adjustable derivative contract isbacked by the shares of the original company, if it survives thecorporate event, and the shares distributed as a result of the corporateevent. 2. The DIVS receives the dividend paid on the shares underlyingthe adjustable derivative contract as a result of the corporate event.3. At termination, the value of the underlying stock is computed as theprice of each stock times the number of shares of each stock underlyingthe adjustable derivative contract. 4. The monetary value of the stockeach adjustable derivative contract receives is calculated in a normaltermination, based on the termination claim and the combined valuecalculated in step 3 herein above. 5. At termination, the RISKS and OWLSholders receive pro rata shares of the stock(s) underlying theadjustable derivative contracts.

In accordance with an exemplary embodiment of the claimed invention asillustrated in Table 14, XYZ company spins-off a portion of the companyto its shareholders, with each original share of the XYZ company gettingone share of the spinning XYZ company and a quarter of share of thespun-off ABC company. Upon such an occurrence, the adjustablederivatives are now backed by a combination of both XYZ and ABC shares.XYZ shares have been spun-off so that there is a ¼ share of ABC forevery share of XYZ. Accordingly an adjustable derivative contract backedby 100 shares of XYZ is now backed by 100 shares of XYZ and 25 shares ofABC. After the spin-off, the XYZ shares trade at a market price of$87.50 while the ABC shares trade at a market price of $50. Relative tooverall dollar value, the derivatives are now backed by 87.5% XYZshares, (100 shares*$87.50)/(100 shares*$87.50+25 shares*$50), and 12.5%ABC shares, (25 shares*$50)/(100 shares*$87.50+25 shares*$50).

TABLE 14 SPIN-OFFS AND SPLIT-UPS (Trading in OWLS, RISKS and DIVS)Original Post Spin-off Cos. Assume ¼ share of ABC company for eachCompany XYZ Co. ABC Co. original share of XYZ Co On Effective Date:Shares/contract 100 100 25 Shares underlying adjustable derivativecontract 100 shares of Co XYZ and 25 shares of Co ABC Termination Claim$100.00 Termination Claim on original contract Price/share $100.00$87.50 $50.00 100 = 1.00*87.5 + .25*50.0 Value/contract $10,000 $8,750$1,250 share price times shares/contract Relative value 100.00% 87.50%12.50% The percentage that each company represents of the originalcompany's pre ex-date value Dividend/share $5.00 $4.00 $4.00 Announcedby companies Dividend/contract $500 $400 $100 Dividend times number ofshares per contract; $400 = $4 * 100; $100 = $4* 25 On Termination Date(Contract Settlement): Value/share of $135 $110 $100 Assumed prices fortwo companies, and Combined Cos combined contract value; $135 = 1.00 *$110 + 0.25 * $100 Value/contract $13,500 $11,000 $2,500 Price per sharetimes shares/contract OWLS % Combined 74.07% Value of OWLS derivativecontract as a percent of the combined value 74.074% = 11,000/(11,000 +2,500) OWLS value $10,000 $8,148.15 $1,851.85 Split based on the valueof each company $8,148.15 = $11,000 * 74.07% $1,851.85 = $2,500 * 74.07%OWLS shares 74 18 Number of shares of XYZ Co. & ABC Co.; 74 = integerpart of $8,148.15/$110; 18 = integer part of $1,851.85/$100 OWLS cash$8.15 $51.85 Cash in lieu of fractional shares RISKS % Combined 25.93%Value of RISKS derivative contract as a percent of the combined value25.93% = ($13,500 − $10,000)/($11,000 + $2,500) RISKS value $3,500$2,851.85 $648.15 Split based of the value of each company $2,851.85 =25.93% * $11,000 $648.15 = 25.93% * $2,500 RISKS shares 25 6 Number ofshares of XYZ Co. & ABC Co.; 25 = interger part of $2581.85/$110; 6 =integer part of $648.15/$100 RISKS cash $101.85 $48.15 Cash in lieu offractional shares; $101.85 = $2,851.85 − 25 * $110; $48.15 = $648.15 −6 * $110

For the remainder of the contract term, the adjustable DIVS contractholders receive the stream of dividends from both XYZ and ABC multipliedby the number of shares in the contract for each of these companies,which should be 4 shares of XYZ for every share of ABC.

Upon termination of the adjustable DORS derivative contracts, XYZ istrading at the market price of $110/share while ABC trades at the marketprice of $100/share. An adjustable OWLS contract holder who initiallyowned 100 shares of XYZ with a Termination Claim of $100, has anadjustable derivative contract that is now backed by $11,000 (100shares*$110) worth of XYZ stock and $2,500 worth of ABC stock (25shares*$100), or $13,500 worth of the combined stocks. The adjustableOWLS contract holders, however, are only entitled to $10,000 of the$13,500 based on the original termination claim of $100 with respect tothe original 100 pre-spin-off shares of XYZ. Accordingly, at terminationof the adjustable OWLS derivative contract, adjustable OWLS contractholders are only entitled to 74.074% ($10,000/$13,500) of the proceedsfrom each of XYZ and ABC, which entitles them to $8,148.15 of XYZproceeds and $1,581.85 of ABC proceeds. The adjustable OWLS contractholders will be paid in the underlying shares of the companies with cashin lieu of fractional shares which translates to a distribution of 74shares of XYZ stock plus $8.15 and 18 shares of ABC stock plus $51.85.At termination of the adjustable RISKS derivative contract, theadjustable RISKS contract holders would receive the remainder of theproceeds equating to $3,500, which would be a distribution of $2,851.85of XYZ proceeds (or 25 shares of XYZ plus $101.85) and $648.15 of ABCproceeds (or 6 shares of ABC plus $48.15).

From time to time a corporation that issued the stock underlying theadjustable derivative contracts will announce a stock split, resultingin the issuance of new shares of stock for each existing share. Inaccordance with an exemplary embodiment of the claimed invention asillustrated in Table 15, the adjustable derivative contracts adjust toaccount for a three for two stock splits. The holders of the underlyingstock getting 1.5 shares of stock for each share she owned before thesplit is announced. Each investor in the underlying stock will get anadditional half share of stock for each original share of stock,resulting in her having 1.5 times as many shares as originally and theprice of each share is reduced by 33.33%, which is 1 divided by 1.5.Assuming there is no change in the dividend policy of the corporation,the dividend is reduced by 33.33% also. This results in the market valueof the stock held by investors remaining the same before and after thesplit. The adjustable derivative contract of the claimed invention orthe inventive method applied to the adjustable derivative contractsresults in each adjustable derivative contract being backed by 1.5shares for each original share. The adjustable derivative contracts ofthe claimed invention and the inventive method can be applied to anystock split announced by the corporation.

TABLE 15 STOCK SPLIT 3 SHARES FOR 2 SHARES STOCK SPLIT Pre Split PostSplit Shares/ Shares/ Contract Price Value Contract Price Value CommonStock 100 $105.00 $10,500.00 150 $70.00 $10,500.00 RISKS Contract 100$15.32 $1.532.00 150 $10.21 $1,532.00 OWLS Contract 100 $71.84 $7,184.00150 $47.89 $7,184.00 DIVS Contract 100 $17.84 $1,784.00 150 $11.89$1,784.00 Annual Stock $5.00 $3.33 Dividend Termination Claim $100.00$66.67

From time to time a corporation may increase the number of shares eachinvestor in the corporation owns by declaring a stock dividend. As anexample, the company may announce a 5.00% stock dividend. This resultsin each share holder receiving 5 new shares of stock for each 100 sharesshe owns, thereby increasing her holding to 105 shares for every 100shares held by her previously. At the same time, the price of the stockwill be reduced to reflect the increased number of shares outstanding,typically reducing the price by 1 divided by (one plus the dividend). Inthe example shown herein, the stock price is reduced to approximately95.24% of its original value, with its actual price being determined bythe market place. In accordance with an exemplary embodiment of theclaimed invention as illustrated in Table 16, the adjustable derivativecontracts will be underlain by the original number of shares plus thenumber of shares issued per original underlying share as a result of thestock dividend.

TABLE 16 STOCK DIVIDEND 5.00% STOCK DIVIDEND Pre Split Post SplitShares/ Shares/ Contract Price Value Contract Price Value Common Stock100 $105.00 $10,500.00 105 $100.00 $10,500.00 RISKS Contract 100 $15.32$1.532.00 105 $14.01 $1,471.05 OWLS Contract 100 $71.84 $7,184.00 105$68.15 $7,155.75 DIVS Contract 100 $17.84 $1,784.00 105 $17.84 $1,873.20Annual Stock $5.00 $5.00 Dividend Termination Claim $100.00 $95.24

Corporate Events Resulting in the Termination of the Adjustable DORSDerivative Contracts

In accordance with an exemplary embodiment of the claimed invention asillustrated in Table 17, the corporate events involve transactionsinvolving the distribution of securities other than cash or commonstock, such as bonds, preferred stocks, commodities, warrants and thelike, which terminates the adjustable DORS derivative contracts. Thecorporate event can involve Distribution of securities only or acombination of cash and securities. Assume for the purposes of thisexample that the termination claim was set at $100, the adjustable OWLScontract is currently trading at $71.84, the adjustable DIVS contract iscurrently trading at $17.84, adjustable RISKS contract is currentlytrading at $15.32, number of days to termination or number of daysremaining in the contract (DTM) is 1460 days, and each adjustablecontract is based on 100 shares of security, e.g., common stock. If onlyadjustable OWLS and RISKS are trading, then the adjustable OWLS andRISKS derivative contracts are terminated, and the processor determinesthe Adjusted Termination Claim by calculating the present value of theTermination Claim (PVTC) based on the time to termination of thecontract discounted at the risk free rate to allocate the Distributionbetween the adjustable OWLS and RISKS holders/owners. If the value ofthe Distribution is less than the present value of the Termination Claim(PVTC), then the entire Distribution is given to the adjustable OWLSholder/owner and the adjustable RISKS holder/owner receives no portionof the Distribution. However, if the value of the Distribution isgreater than or equal to the present value of the Termination Claim,then the adjustable OWLS holder gets the value of the Distribution up tothe Adjusted Termination Claim and the adjustable RISKS holder gets thevalue of the Distribution above the Adjusted Termination Claim. Theparts of the Distribution are allocated to the adjustable OWLS and RISKSholder/owner on a pro rata basis.

All adjustable DORS derivative contracts can be prematurely terminatedby the issuer. At termination of the adjustable DIVS derivativecontract, the adjustable DIVS holder/owner gets an amount up to the sumof: (i) five percent (5.0%) of the Cash Portion of the Distributionmultiplied by the number of days remaining in the Contract divided bythe total number of days in the contract (DTM/total days of contract);and (ii) the present value of the reduction of the dividend, if any,paid on the underlying stock over the remainder of the term of thecontract. It is appreciated that the maximum payment to the DIVSholder/owner is the value of the Cash Portion of the Distribution. TheCash Portion of the Distribution is reduced by the payment to theadjustable DIVS holder/owner to obtain Adjusted Cash Portion. The valueof the Distribution is also reduced by the payment to the adjustableDIVS holder/owner to obtain an Adjusted Distribution Value to beallocated between the adjustable OWLS and RISKS holders/owners. At thetermination of the adjustable OWLS and RISKS derivative contracts, theprocessor determines the Adjusted Termination Claim by calculating thepresent value of the Termination Claim (PVTC) based on the time totermination of the contract discounted at the risk free rate. If theAdjusted Distribution Value is less than or equal to the present valueof the Termination Claim (PVTC), then the entire Adjusted DistributionValue is given to the adjustable OWLS holder/owner and the adjustableRISKS holder/owner receives no portion of the Distribution. However, ifthe Adjusted Distribution Value is greater than the present value of theTermination Claim, then the adjustable OWLS holder gets the AdjustedDistribution Value up to the Adjusted Termination Claim and theadjustable RISKS holder gets the Adjusted Distribution Value above theAdjusted Termination Claim. The parts of the Distribution are allocatedto the adjustable OWLS and RISKS holder/owner on a pro rata basis.

TABLE 17 CORPORATE EVENTS RESULTING IN THE TERMINATION OF THE DORSDERVIATIVE CONTRACTS (Trading in OWLS, RISKS and DIVS) (Contract basedon 100 shares) (Corporate events comprised of securities other than cashand common stock) Assumed Stock Parameters and Derivative ContractPrices Dividend $5.00 Stock Price $105.00 Days to Term 1460 RISKS Price(b) 15.32 Years to Term 4 OWLS Price 71.84 Termination Claim $100.00DIVS Price (c) 17.84 Standard Deviation 16% Risk Free Rate (a)  6% (a)The interest rate on Treasury obligations matched to the RISKStermination date. (b) RISKS pricing based on Black/Scholes formula. (c)Based on the risk free rate and assuming no dividend growth In the caseof no DIVS trading, then skip steps 1-2 and start with step 3: 1. Thepayment to the DIVS is the sum up to:  a. 5.0% of the Cash portion ofthe Distribution multiplied by the number of days remaining in thecontract divided by the total number of days in the contract (DTM/Totaldays of contract); and  b. The present value of the reduction of thedividend, if any, paid on the underlying stock over the reminder of theterm of the contract. 2. Adjusted Distribution Value = value of theparts of the Distribution (cash and securities) reduced by the paymentto the DIVS. 3. Determined Adjusted Termination Claim by adjusting theTermination Claim to the present value of the original Termination Claim(PVTC) based on the time to termination of the contract discounted atthe risk free rate. 4. If the Adjusted Distribution Value is less thanor equal to the Adjusted Termination Claim, the OWLS gets all of theAdjusted Distribution Value. 5. If the Adjusted Distribution Value isgreater than the Adjusted Termination Claim:  a. The OWLS get AdjustedDistribution Value up to the Adjusted Termination Claim; and  b. TheRISKS get the Adjusted Distribution Value above the Adjusted TerminationClaim.  c. The parts of the Distribution are distributed to the OWLS andRISKS on a pro rata basis.

As illustrated in Table 18, the exemplary corporate event involvesDistribution with a market value of $150 comprising bonds, preferredstock and Cash Portion of $30. Assumed stock parameters and derivativecontract prices are set forth in Table 17 and announcement by thecompany that dividend is discontinued. That is, the annual dividend isreduced by $5.00 to zero due to the extraordinary liquidating cashpayment. In accordance with an exemplary embodiment of the claimedinvention, at termination of the adjustable DIVS derivative contract,the adjustable DIVS holder/owner gets $19.04, the amount up to the sumof: (i) five percent (5.0%) of the Cash Portion of the Distributionmultiplied by the number of days remaining in the Contract divided bythe total number of days in the contract (DTM/total days of contract) or$1.20=$30*0.05*(1460/1825); and (ii) the present value of the reductionof the dividend, if any, paid on the underlying stock over the remainderof the term of the contract or $17.84=PV of $5.00 for 4 years discountedat 6.0%. The value of the Distribution is reduced by the payment to theadjustable DIVS holder/owner to obtain an Adjusted Cash Portion($10.96=$30.00−$19.04) and an Adjusted Distribution Value($130.96=$150.00−$19.04) to be allocated between the adjustable OWLS andRISKS holders/owners at the termination of the adjustable OWLS and RISKSderivative contract. The processor calculates the present value of theTermination Claim (PVTC) based on the time to termination of thecontract discounted at the risk free rate or$79.21=$100/[(1+0.06)̂(1460/365)]. Since the Adjusted Distribution Valueof $130.96 is greater than the Adjusted Termination Claim (PVTC=$79.21),the Adjusted Distribution Value of $130.96 is allocated between theadjustable OWLS and RISKS holders/owners. At the termination of theadjustable OWLS derivative contract, the adjustable OWLS holder/ownergets the Adjusted Distribution Value up to the Adjusted TerminationClaim (PVTC) or $79.21, thereby compensating the OWLS holder/owner forthe decrease in the Termination Claim. The RISKS holder/owner gets theAdjusted Distribution Value above the Adjusted Termination Claim or$51.75=$130.96−$79.21, at the termination of the adjustable RISKSderivative contract.

The parts of the Distribution remaining after payment to the adjustableDIVS holder/owner are distributed to the adjustable OWLS and RISKSholders/owners on a pro rata basis at the termination of the adjustableDORS derivative contract. The adjustable OWLS holder/owner's allocatedpercentage of the Adjusted Distribution Value is60.48%=100*$79.21/($79.21+51.75) and the adjustable RISKS holder/owner'sallocated percentage of the Adjusted Distribution Value is39.52%=100*$51.75/($79.21+$51.75). The allocation of the AdjustedDistribution Value is based on 100 shares per adjustable DORS derivativecontract. At the termination of the adjustable DORS derivative contract,the total payment to the adjustable DIVS holder/owner is$1904=100*$19.04. The adjustable OWLS holder/owner receives 60.48% ofthe Adjusted Cash Portion or $662.86=60.48%*$1096; 60.48% of thepreferred stock distribution or 30 shares of preferred stock=integer of(100*60.48%*0.50 shares); and 60.48% of the bonds distribution or45=integer of (100*60.48%*0.75). The adjustable RISKS holder/ownerreceives 39.52% of the Adjusted Cash Portion or $433.14=39.528%*$1096;39.52% of the preferred stock distribution or 19 shares of preferredstock=integer of (100*39.52%*0.50 shares); and 39.52% of the bondsdistribution or 29=integer of (100*39.52%*0.75).

TABLE 18 DISTRIBUTION OF CASH, BOND AND PREFERRED STOCK (Trading inOWLS, RISKS and DIVS) Cash Distribution $30.00 Announced by the CompanyShares of Preferred Stock 0.5 Announced by the Company Bonds 0.75Announced by the Company Market value of Distribution $150.00 New StockDividend $0.00 Dividend discontinued by the Company Reduction inDividend $5.00 Dividend discontinued by the company Payment to DIVS$19.04 $19.04 = $1.20 + $17.84  i. Portion of Cash $1.20 $1.20 = $30 *.05 * (1460/1825)  ii. PV of Div decrease $17.84 $17.84 = PV of $5.00for 4 years discounted at 6.0% Adjusted Term Claim $79.21 PV of $100discounted at 6% over 4 years; $79.21 = $100/[(1 + .06){circumflex over( )}(1460/365)] Adjusted Cash Portion $10.96 Cash Portion less paymentto DIVS ($10.96 = $30 − $19.04) Adjusted Distribution Value $130.96Value of the Distribution reduced by payment to DIVS ($130.96 = $150 −$19.04) OWLS portion of Adjusted $79.21 OWLS get Adjusted DistributionValue up to the Distribution Value Adjusted Termination Claim DIVSportion of Adjusted $51.75 RISKS get Adjusted Distribution Value abovethe Distribution Value Adjusted Termination Claim OWLS % of Adjusted60.48% 60.48% = 100 * $79.21/($79.21 + $51.75) Distribution Value RISKS% of Adjusted 39.52% 39.52% = 100 * $51.75/($79.21 + $51.75)Distribution Value Adjusted Cash Portion per contract $1096.00Distribution based on 100 shares per adjustable DORS (DIVS, OWLS, RISKS)derivative contract OWLS Cash Portion $662.86 $662.86 = 60.48% *$1096.00 OWLS Preferred 30 shares 30 shares = integer of 100 * 60.48% *0.50 OWLS Bond 45 45 = integer of 100 * 60.48% * 0.75 RISKS Cash Portion$433.14 $662.86 = 39.52% * $1096.00 RISKS Preferred 19 shares 19 shares= integer of 100 * 39.52% * 0.50 RISKS Bond 29 45 = integer of 100 *39.52% * 0.75

In accordance with an exemplary embodiment of the claimed invention, themethods for implementing the claimed invention can be implemented usingprocessor-executable instructions for directing operation of a device ordevices under processor control (e.g., processor based computer orserver and the like), the processor-executable instructions can bestored on a tangible computer-readable medium, such as but not limitedto a disk, CD, DVD, flash memory, portable storage or the like. Theprocessor-executable instructions can be accessed from a serviceprovider's website or stored as a set of downloadableprocessor-executable instructions, for example or downloading andinstallation from an Internet location (e.g. Web server).

In accordance with an exemplary embodiment of the claimed invention, anon-transitory computer readable storage medium comprises computerexecutable code for adjusting a derivative contract to account for timevalue of money due to an occurrence of a corporate event that affectsthe value of the derivative contract. The claimed code comprisesinstructions for adjusting the termination claim of the derivativecontract to account for time value of money by a processor, therebyaffecting the value of said derivative contract. The derivative contractis based on one of a plurality of economic interests of at least twoshares of an underlying security. The claimed code further comprisesinstructions for the processor to adjust a provision of the derivativecontract based on distributions to the underlying security and to storethe adjusted termination claim and the adjusted derivative contract in adatabase.

In accordance with an exemplary embodiment of the claimed invention, asystem for adjusting a derivative contract to account for time value ofmoney due to an occurrence of a corporate event that affects the valueof the derivative contract comprises a processor and a database. Theprocessor adjusts a termination claim of the derivative contract toaccount for time value of money, thereby affecting the value of thederivative contract, and adjusts a provision of the derivative contractbased on distributions to an underlying security. The derivativecontract is based on one of a plurality of economic interests of atleast two shares of the underlying security. The database stores theadjusted termination claim and the adjusted derivative contract.

In accordance with an exemplary embodiment of the claimed invention, theissuer can force a premature liquidation of the European stylederivative contract if the adjusted terms of the derivative contract(i.e., European style derivative contract) becomes unattractive to theinvestors and does not trade or the trade volume is low.

While the claimed invention has been particularly described with respectto the illustrated embodiments, it will be appreciated that variousalterations, modifications and adaptations may be made based on thepresent disclosure, and are intended to be within the scope of theclaimed invention. It is appreciated that although the invention hasbeen described with respect to two or three derivative contracts, eachbased on one of the economic interests of the underlying security, thedisclosed invention may be similarly applied to any number of derivativecontracts, each based on one of the economic interests of the underlyingsecurity. It is intended that the appended claims be interpreted asincluding the embodiments discussed above, the various alternatives thathave been described, and all equivalents thereto.

1. A method for adjusting provisions of derivative contracts to accountfor time value of money due to an occurrence of a corporate event thataffects the value of the derivative contract, comprising the steps of:receiving, via a processor based computer, financial informationregarding a derivative contract comprising at least a termination claimof the derivative contract and the length of the derivative contract,wherein each derivative contract represents one of a plurality ofeconomic interests of at least two shares of an underlying security;receiving, via the computer, information identifying a corporate eventthat affects the value of the derivative contract; adjusting, via thecomputer, the termination claim of the derivative contact to its presentvalue based at least on the length of time remaining on the derivativecontract discounted at a predetermined rate to account for the timevalue of money; adjusting, via the computer, one or more provisions ofthe derivative contract based on the adjusted termination claim and apredetermined formula for determining the effect of the corporate eventon the derivative contract based on a type of distribution to theunderlying security; and storing an adjusted termination claim and anadjusted derivative contract in a database.
 2. The method of claim 1,wherein said each derivative contract represents one of at least twoeconomic interests of said at least two shares of an underlyingsecurity: an option with limited stock (OWLS) derivative contractrepresenting a nucleus of said at least two shares of the underlyingsecurity, and a residual interest in stock (RISKS) derivative contractrepresenting speculation on future gains on the value of said at leasttwo shares of the underlying security; and further comprises the step ofallocating the value of said at least two shares of the underlyingsecurity into the OWLS and RISKS derivative contracts.
 3. The method ofclaim 2, wherein the type of the distribution to the underlying securityis a cash distribution; and further comprising the steps of: allocatingentire cash distribution to the OWLS derivative contract to account fordecrease in the termination claim if the cash distribution is less thanthe present value of the termination claim; determining a future valueof the cash distribution discounted at a predetermined rate to accountfor time value of money if the cash distribution is less than thepresent value of the termination claim; calculating an adjustedtermination claim by reducing the termination claim by the future valueof the cash distribution if the cash distribution is less than thepresent value of the termination claim; allocating a portion of the cashdistribution up to the present value of the termination claim to theOWLS derivative contract if the cash distribution is greater than orequal to the present value of the termination claim; allocating aremaining portion of the cash distribution to the RISKS derivativecontract if the cash distribution is greater than or equal to thepresent value of the termination claim; and calculating an adjustedtermination claim by reducing the termination claim to zero if the cashdistribution is greater than or equal to the present value of thetermination claim.
 4. The method of claim 2, wherein the type ofdistribution to the underlying security is a common stock distribution;wherein said each derivative contract represents an economic interest ofsaid at least two shares of an underlying security and at least oneshare of a common stock of the common stock distribution, whereby saideach derivative contract represents the economic interest of combinedsecurities; and further comprising the steps of: adjusting one or moreprovisions of said each derivative contract based on the type ofdistribution to the combined securities as a result of the corporateevent by the computer. allocating at termination of the OWLS derivativecontract, an OWLS percentage of the common stock distribution to theOWLS derivative contract based on an expected value of the OWLSderivative contract as a percentage of an expected combined value of theOWLS and RISKS derivative contracts; allocating at termination of theRISKS derivative contract, a RISKS percentage of the common stockdistribution to the RISKS derivative contract based on an expected valueof the RISKS derivative contract as a percentage of the expectedcombined value of the OWLS and RISKS derivative contracts; and providinga cash payment in lieu of fractional shares allocated to the OWLS andRISKS derivative contracts.
 5. The method of claim 2, wherein the typeof distribution is a non-common stock securities distribution; andfurther comprising the steps of: allocating at termination of the OWLSderivative contract, entire non-common stock securities distribution tothe OWLS derivative contract if the market value of the non-common stocksecurities distribution is less than the present value of thetermination claim; and allocating at termination of the RISKS and OWLSderivative contracts, a portion of the non-common stock securitiesdistribution having a value equal to the present value of thetermination claim to the OWLS derivative contract and allocating aremaining portion of the non-common stock securities to the RISKSderivative contract if the market value of the non-common stocksecurities distribution is greater than or equal to the present value ofthe termination claim.
 6. The method of claim 1, wherein said eachderivative contract represents one of at least three economic interestsof said at least two shares of an underlying security: a dividend valueof stock (DIVS) derivative contract representing a stream of dividendsdistributed to a holder of said at least two shares of the underlyingsecurity, an option with limited stock (OWLS) derivative contractrepresenting a nucleus of said at least two shares of the underlyingsecurity, and a residual interest in stock (RISKS) derivative contractrepresenting speculation on future gains on the value of said at leasttwo shares of the underlying security; and further comprises the step ofallocating the value of said at least two shares of the underlyingsecurity into the DIVS, OWLS and RISKS derivative contracts.
 7. Themethod of claim 6, wherein the type of the distribution to theunderlying security is a cash distribution; and further comprising thesteps of: allocating to the DIVS derivative contract a portion of thecash distribution up to a sum of a predetermined percentage of the cashdistribution and a present value of reduction of a dividend paid on theunderlying security over a remaining term of the DIVS derivativecontract; allocating entire remaining portion of the cash distributionto the OWLS derivative contract to account for a decrease in thetermination claim if a remaining portion of the cash distribution isless than the present value of the termination claim; determining afuture value of the remaining portion of cash distribution discounted atthe predetermined rate to account for time value of money if theremaining portion of the cash distribution is less than the presentvalue of the termination claim; calculating an adjusted terminationclaim by reducing the termination claim by the future value of theremaining portion of the cash distribution if the remaining portion ofthe cash distribution is less than the present value of the terminationclaim; allocating a part of the remaining portion of the cashdistribution up to the present value of the termination claim to theOWLS derivative contract if the remaining portion of the cashdistribution is greater than or equal to the present value of thetermination claim; allocating a remaining part of the remaining portionof the cash distribution to the RISKS derivative contract if theremaining portion of the cash distribution is greater than or equal tothe present value of the termination claim; and calculating the adjustedtermination claim by reducing the termination claim to zero if theremaining portion of the cash distribution is greater than or equal tothe present value of the termination claim.
 8. The method of claim 7,wherein the step of allocating to the DIVS derivative contract allocatesthe portion of the cash distribution up to the sum of the predeterminedpercentage of the cash distribution multiplied by a number of daysremaining in the DIVS derivative contract divided by a total number ofdays in the DIVS contract, and the present value of reduction of thedividend paid on the underlying security over the remaining term of theDIVS derivative contract.
 9. The method of claim 6, wherein the type ofdistribution to the underlying security is a common stock distribution;wherein said each derivative contract represents an economic interest ofsaid at least two shares of an underlying security and at least oneshare of the common stock distribution, whereby said each derivativecontract represents the economic interest of combined securities; andfurther comprising the steps of: allocating entire dividend paid on thecombined securities to the DIVS derivative contract; adjusting one ormore provisions of said each derivative contract based on the type ofdistribution to the combined securities as a result of the corporateevent by the computer; allocating at termination of the OWLS derivativecontract, an OWLS percentage of the common stock distribution to theOWLS derivative contract based on an expected value of the OWLSderivative contract as a percentage of an expected combined value of theOWLS and RISKS derivative contracts; allocating at termination of theRISKS derivative contract, a RISKS percentage of the common stockdistribution to the RISKS derivative contract based on an expected valueof the RISKS derivative contract as a percentage of the expectedcombined value of the OWLS and RISKS derivative contracts; and providinga cash payment in lieu of fractional shares allocated to the OWLS andRISKS derivative contracts.
 10. The method of claim 6, wherein the typeof distribution is a non-common stock securities distribution; andfurther comprising the steps of: allocating to the DIVS derivativecontract at termination of the DIVS derivative contract, a portion of acash portion of the non-common securities distribution up to a sum of apredetermined percentage of the cash distribution and a present value ofreduction of a dividend paid on the underlying security over theremainder of a term of the DIVS derivative contract; allocating entireremaining portion of the non-common stock securities distribution to theOWLS derivative contract at the termination of the OWLS derivativecontract if the market value of the non-common stock securitiesdistribution is less than the present value of the termination claim;and allocating a part of the remaining portion of the non-common stocksecurities distribution having a value equal to the present value of thetermination claim to the OWLS derivative contract at termination of theOWLS derivative contract if the market value of the non-common stocksecurities distribution is greater than or equal to the present value ofthe termination claim; and allocating a remaining part of the remainingportion of the non-common stock securities to the RISKS derivativecontract at the termination of the RISKS contract if the market value ofthe non-common stock securities distribution is greater than or equal tothe present value of the termination claim.
 11. The method of claim 1,further comprising the step of forcing premature liquidation of saidplurality of derivative contracts by an issuer of said pluralityderivative contracts.
 12. A non-transitory computer readable storagemedium comprising computer executable code for adjusting a derivativecontract to account for time value of money due to an occurrence of acorporate event that affects the value of the derivative contract, saidcode comprising instructions for: receiving, via a processor basedcomputer, financial information regarding a derivative contractcomprising at least a termination claim of the derivative contract andthe length of the derivative contract, wherein each derivative contractrepresents one of a plurality of economic interests of at least twoshares of an underlying security; receiving, via the computer,information identifying a corporate event that affects the value of thederivative contract; adjusting, via the computer, the termination claimof the derivative contact to its present value based at least on thelength of time remaining on the derivative contract discounted at apredetermined rate to account for the time value of money; adjusting,via the computer, one or more provisions of the derivative contractbased on the adjusted termination claim and a predetermined formula fordetermining the effect of the corporate event on the derivative contractbased on a type of distribution to the underlying security; and storingan adjusted termination claim and an adjusted derivative contract in adatabase.
 13. The computer readable storage medium of claim 12, whereinthe type of the distribution to the underlying security is a cashdistribution; wherein said each derivative contract represents one of atleast two economic interests of said at least two shares of anunderlying security: an option with limited stock (OWLS) derivativecontract representing a nucleus of said at least two shares of theunderlying security, and a residual interest in stock (RISKS) derivativecontract representing speculation on future gains on the value of saidat least two shares of the underlying security; and wherein said codefurther comprises instructions for: allocating the value of said atleast two shares of the underlying security into the OWLS and RISKSderivative contracts; allocating entire cash distribution to the OWLSderivative contract to account for decrease in the termination claim ifthe cash distribution is less than the present value of the terminationclaim; determining a future value of the cash distribution discounted ata predetermined rate to account for time value of money if the cashdistribution is less than the present value of the termination claim;calculating an adjusted termination claim by reducing the terminationclaim by the future value of the cash distribution if the cashdistribution is less than the present value of the termination claim;allocating a portion of the cash distribution up to the present value ofthe termination claim to the OWLS derivative contract if the cashdistribution is greater than or equal to the present value of thetermination claim; allocating a remaining portion of the cashdistribution to the RISKS derivative contract if the cash distributionis greater than or equal to the present value of the termination claim;and calculating an adjusted termination claim by reducing thetermination claim to zero if the cash distribution is greater than orequal to the present value of the termination claim.
 14. The computerreadable storage medium of claim 12, wherein the type of distribution tothe underlying security is a common stock distribution; wherein saideach derivative contract represents one of at least two economicinterests of said at least two shares of an underlying security and atleast one share of a common stock of the common stock distribution,whereby said each derivative contract represents the economic interestof combined securities: an option with limited stock (OWLS) derivativecontract representing a nucleus of said at least two shares of theunderlying security, and a residual interest in stock (RISKS) derivativecontract representing speculation on future gains on the value of saidat least two shares of the underlying security; and wherein said codefurther comprises instructions for: allocating the value of said atleast two shares of the underlying security into the OWLS and RISKSderivative contracts; adjusting one or more provisions of said eachderivative contract based on the type of distribution to the combinedsecurities as a result of the corporate event by the computer.allocating at termination of the OWLS derivative contract, an OWLSpercentage of the common stock distribution to the OWLS derivativecontract based on an expected value of the OWLS derivative contract as apercentage of an expected combined value of the OWLS and RISKSderivative contracts; allocating at termination of the RISKS derivativecontract, a RISKS percentage of the common stock distribution to theRISKS derivative contract based on an expected value of the RISKSderivative contract as a percentage of the expected combined value ofthe OWLS and RISKS derivative contracts; and providing a cash payment inlieu of fractional shares allocated to the OWLS and RISKS derivativecontracts.
 15. The computer readable storage medium of claim 12, whereinthe type of distribution is a non-common stock securities distribution;wherein said each derivative contract represents one of at least twoeconomic interests of said at least two shares of an underlyingsecurity: an option with limited stock (OWLS) derivative contractrepresenting a nucleus of said at least two shares of the underlyingsecurity, and a residual interest in stock (RISKS) derivative contractrepresenting speculation on future gains on the value of said at leasttwo shares of the underlying security; and wherein said code furthercomprises instructions for: allocating the value of said at least twoshares of the underlying security into the OWLS and RISKS derivativecontracts; allocating at termination of the OWLS derivative contract,entire non-common stock securities distribution to the OWLS derivativecontract if the market value of the non-common stock securitiesdistribution is less than the present value of the termination claim;and allocating at termination of the RISKS and OWLS derivativecontracts, a portion of the non-common stock securities distributionhaving a value equal to the present value of the termination claim tothe OWLS derivative contract and allocating a remaining portion of thenon-common stock securities to the RISKS derivative contract if themarket value of the non-common stock securities distribution is greaterthan or equal to the present value of the termination claim.
 16. Thecomputer readable storage medium of claim 12, wherein said eachderivative contract represents one of at least three economic interestsof said at least two shares of an underlying security: a dividend valueof stock (DIVS) derivative contract representing a stream of dividendsdistributed to a holder of said at least two shares of the underlyingsecurity, an option with limited stock (OWLS) derivative contractrepresenting a nucleus of said at least two shares of the underlyingsecurity, and a residual interest in stock (RISKS) derivative contractrepresenting speculation on future gains on the value of said at leasttwo shares of the underlying security; and further comprises the step ofallocating the value of said at least two shares of the underlyingsecurity into the DIVS, OWLS and RISKS derivative contracts.
 17. Asystem for adjusting a derivative contract to account for time value ofmoney due to an occurrence of a corporate event that affects the valueof the derivative contract, comprising: a processor based computerprogrammed to: receive financial information regarding a derivativecontract comprising at least a termination claim of the derivativecontract and the length of the derivative contract, wherein eachderivative contract represents one of a plurality of economic interestsof at least two shares of an underlying security; receive informationidentifying a corporate event that affects the value of the derivativecontract; adjust the termination claim of the derivative contact to itspresent value based at least on the length of time remaining on thederivative contract discounted at a predetermined rate to account forthe time value of money; adjust one or more provisions of the derivativecontract based on the adjusted termination claim and a predeterminedformula for determining the effect of the corporate event on thederivative contract based on a type of distribution to the underlyingsecurity; and a database to store an adjusted termination claim and anadjusted derivative contract in a database.
 18. The system of claim 17,wherein the type of the distribution to the underlying security is acash distribution; wherein said each derivative contract represents oneof at least two economic interests of said at least two shares of anunderlying security: an option with limited stock (OWLS) derivativecontract representing a nucleus of said at least two shares of theunderlying security, and a residual interest in stock (RISKS) derivativecontract representing speculation on future gains on the value of saidat least two shares of the underlying security; wherein the computerallocates the value of said at least two shares of the underlyingsecurity into the OWLS and RISKS derivative contracts; wherein if thecash distribution is less than the present value of the terminationclaim, the computer allocates entire cash distribution to the OWLSderivative contract to account for decrease in the termination claim,determines a future value of the cash distribution discounted at saidpredetermined rate to account for time value of money, and calculates anadjusted termination claim by reducing the termination claim by thefuture value of the cash distribution; and wherein if the cashdistribution is greater than or equal to the present value of thetermination claim, the computer allocates a portion of the cashdistribution up to the present value of the termination claim to theOWLS derivative contract, allocates a remaining portion of the cashdistribution to the RISKS derivative contract, and calculates anadjusted termination claim by reducing the termination claim to zero.19. The system of claim 17, wherein the type of distribution to theunderlying security is a common stock distribution; wherein said eachderivative contract represents one of at least two economic interests ofsaid at least two shares of an underlying security and at least oneshare of the common stock distribution, whereby said each derivativecontract represents the economic interest of combined securities: anoption with limited stock (OWLS) derivative contract representing anucleus of said at least two shares of the underlying security, and aresidual interest in stock (RISKS) derivative contract representingspeculation on future gains on the value of said at least two shares ofthe underlying security; wherein the computer allocates the value ofsaid at least two shares of the underlying security into the OWLS andRISKS derivative contracts, and adjusts one or more provisions of saideach derivative contract based on the type of distribution to thecombined securities as a result of the corporate event; wherein attermination of the OWLS derivative contract, the computer allocates anOWLS percentage of the common stock distribution to the OWLS derivativecontract based on an expected value of the OWLS derivative contract as apercentage of an expected combined value of the OWLS and RISKSderivative contracts; and wherein at termination of the RISKS derivativecontract, the computer processor allocates a RISKS percentage of thecommon stock distribution to the RISKS derivative contract based on anexpected value of the RISKS derivative contract as a percentage of theexpected combined value of the OWLS and RISKS derivative contracts. 20.The system of claim 17, wherein the type of distribution is a non-commonstock securities distribution; wherein said each derivative contractrepresents one of at least two economic interests of said at least twoshares of an underlying security: an option with limited stock (OWLS)derivative contract representing a nucleus of said at least two sharesof the underlying security, and a residual interest in stock (RISKS)derivative contract representing speculation on future gains on thevalue of said at least two shares of the underlying security; whereinthe computer allocates the value of said at least two shares of theunderlying security into the OWLS and RISKS derivative contracts;wherein at termination of the OWLS derivative contract, the computerallocates the entire non-common stock securities distribution to theOWLS derivative contract if the market value of the non-common stocksecurities distribution is less than the present value of thetermination claim; and wherein at termination of the OWLS and RISKSderivative contracts, if the market value of the non-common stocksecurities distribution is greater than or equal to the present value ofthe termination claim, the computer allocates a portion of thenon-common stock securities distribution having a value equal to thepresent value of the termination claim to the OWLS derivative contractand allocates a remaining portion of the non-common stock securities tothe RISKS derivative contract.